It’s not often I read financial news that genuinely grips me, but I came to life on Wednesday when reading a headline about Barclays (LSE: BARC) shares.
According to analysts at one US investment bank, Barclays shareholders are in line for a windfall totalling £10bn between now and 2025. That’s good news for me and my wife, as she bought the Blue Eagle bank’s stock at a price of 154.5p a share last July.
Barclays shares bounce around
Over the past year, the price chart for this FTSE 100 stock looks like the teeth of a saw: up, down, up, down and so on.
As I write close to Wednesday’s market close, the Barclays share price stands at 154.3p. This values the business at £24bn. To me, this seems a modest price tag for one of the UK’s leading lenders.
What’s more, the shares have zigzagged wildly this calendar year, moving between a high of 198.86p on 8 March to a low of 128.12p on 20 March. That’s mighty volatile for a Footsie stock.
Here’s how the shares have performed over seven different timescales:
| Share price | 154.3p |
| One day | +0.6% |
| Five days | -1.7% |
| One month | -3.6% |
| Year to date | -2.7% |
| Six months | -2.4% |
| One year | -3.8% |
| Five years | -20.5% |
Over all five periods ranging from five days to a year, the Barclays share price has crept downwards. Worse still, it has lost more than a fifth of its value over five years.
Then again, these figures exclude cash dividends, which account for a large slice of the long-term returns from owning bank stocks. And speaking of dividends…
£10bn for shareholders?
According to analysts at US investment bank Jefferies, Barclays could return as much as £10bn to its many owners over the next 2.5 years.
According to a report by Bloomberg, the bank has recruited Boston Consulting Group to undertake a strategic review to tackle the long-term weakness in its share price. And Jefferies argues that the best way to do this would be through large-scale share buybacks.
Jefferies’ forecast of total dividends and stock repurchases from now to financial year 2025 is £10bn. This includes £1.5bn of buybacks this year, followed by £2.2bn in 2024 and the same in 2025. Given that Barclays shares trade well below their book value, this programme would make great financial sense.
In its report’s conclusion, Jefferies raised its price target for Barclays stock to 320p from 300p previously. That’s a potential upside of 107.4% from the current price.
This stock still looks cheap to me
At their present price, Barclays shares trade on a lowly price-to-earnings ratio of 4.7, for an earnings yield of 21.2%. What’s more, their historic dividend yield of 4.7% a year is covered a whopping 4.5 times by earnings.
Then again, this stock has been a value trap for years, since the global financial crisis of 2007-09 crushed bank shares. And Barclays faces some strong headwinds, including falling house prices, rising interest rates, and rising bad debts and loan losses in 2023-24.
Despite this, I would gladly buy this wildly undervalued stock today. After all, if Jefferies is right, then Barclays could pay out a remarkable 41.7% of its current market value to shareholders (including me) over the next few years. Woohoo!
