Barclays stock upgraded to hold, target raised to $9 by CFRA

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Barclays stock upgraded to hold, target raised to $9 by CFRA
Credit: © Reuters.

On Wednesday, CFRA made a notable change to its assessment of Barclays (LON: BARC :LN) (NYSE: BCS), elevating the bank's rating from 'Sell' to 'Hold' and increasing its price target to $9.00 from the previous $6.00. The adjustment was made after considering the bank's historical price-to-book (P/B) ratio and its recent strategic update.

The revised 12-month target price for Barclays now reflects a P/B of 0.47 times, which aligns with the bank's five-year average P/B. CFRA has maintained its 2024 earnings per American Depositary Share (ADS) forecast at £1.28 and introduced a 2025 earnings per share (EPS) estimate of £1.40.

Barclays reported a significant decline in its fourth-quarter pre-tax profit for the year 2023, which dropped by 92% year-over-year to £110 million. This figure fell short of the consensus estimate of £238 million, largely due to structural cost actions amounting to £0.9 billion. Revenue also decreased by 3%, with Barclays UK and the Corporate & Investment Bank divisions experiencing declines of 9% and 7%, respectively.

Despite these underwhelming results, Barclays' shares experienced an upswing of as much as 8%. Investors responded favorably to the bank's strategy update, which set an ambitious target for a return on tangible equity of more than 12% by 2026, up from 10.6% in 2023. The strategy involves reallocating resources to the bank's more profitable business segments, particularly in the UK.

CFRA's upgraded rating to 'Hold' reflects a belief that Barclays' strategic plan has the potential to enhance its profitability profile. However, the firm also acknowledges that there are execution risks involved in the bank's approach.

InvestingPro Insights

Following CFRA's reassessment of Barclays and their strategic updates, the InvestingPro data offers further context into the bank's financial position. Barclays' adjusted market capitalization stands at $31.06 billion, demonstrating the scale of their operations. The bank's price-to-earnings (P/E) ratio, a key metric for investors, is currently at an attractive 5.88, with an even more appealing adjusted P/E ratio of 5.1 for the last twelve months as of Q4 2023. This suggests that Barclays' shares may be undervalued compared to earnings, which could be a factor in CFRA's decision to upgrade their rating.

The bank's price-to-book (P/B) ratio for the same period is 0.35, significantly lower than the 0.47 times P/B that CFRA's target price reflects. This discrepancy between the current P/B ratio and CFRA's target could indicate a potential undervaluation of Barclays' assets, aligning with the optimistic view that there is room for the stock price to grow. Additionally, Barclays has shown a strong operating income margin of 31.57%, which may provide confidence in their ability to manage costs and maintain profitability.

InvestingPro Tips suggest that while Barclays' revenue growth has seen a slight decline of -1.01% in the last twelve months as of Q4 2023, the bank's dividend growth of 29.53% in the same period is a positive sign for investors looking for income. This, coupled with a dividend yield of 3.13%, could make Barclays an attractive option for dividend investors. For those considering adding Barclays to their portfolio, InvestingPro offers additional insights, with a total of 7 InvestingPro Tips available, which could further inform investment decisions. To access these tips and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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