The shares of Barclays (LSE: BARC)(NYSE: BCS.US)currently change hands at 214p thats around the level they dropped towhen Dark Pool allegations emerged at the end of June. But the way I see it, the valuation of Barclays should be in line with the lows it recorded between the summer of 2011 and mid-2012. Back then, the stock traded at around 150p.
Net Income Up 974% In 4 Years?
Its easy to forget that the net income of Barclays stood just above half a billion pounds in 2013. The year prior to that, Barclays was in the red.
Analysts are incredibly bullish about the banks prospects. According to some top-end estimates, the bottom line of Barclays will rise to 2.4bn, 3.8bn, 5.1bn and 5.8bn in 2014, 2015, 2016 and 2017, respectively.
Do you believe that the net income of the bank, excluding one-off charges, will grow by 974% in four years? Well, I dont.
Stock Price Target
Barclays may be forced to pay at least a couple of billion pounds in legal settlements in less than twelve months. Barclays stock will soon be hammered, in my view.
Estimates for 2015 suggest earnings per share (EPS) will come in at 24p, or just about 10% above EPS for 2011. In the second half of 2011, Barclays stock traded in the 130p to 160p range. It hit a multi-year low that was also tested in mid-2012, when ascandal over interest-rate manipulation led to a management overhaul.
Barclayshasnt recovered its reputation since the Libor scandal emerged two years ago, and one-off charges will continue to have an impact on its profitability. Dont take a steep growth in operating profit for granted, either. Finally, revenues are unlikely to surge, even under a bull-case scenario. Relentless cost-cutting wont do the trick.
The total number of shares outstanding has constantly risen in the last couple of years and theres no reason to think thatBarclays wont need to issue more equity to strengthen its balance sheet. The dividend is expected to double between 2013 and 2016, but I wouldnt bank on it several risks weigh on the banks profitability, as you know by now.
Its forward price to earnings ratio drops to 6 times in 2018. Thats appealing, right?
In truth, if Barclays doesnt meet bullish estimates for earnings and is forced to raise fresh capital, or both, its shares will never hit 360p or 280p the top-end price target and the average price, respectively, according to estimates. Rather, it will continue to plummet, just as it has done in recent months.
(As you may know, my suggested price target by the end of 2014 is 200p.)
Fed Up With The Banks?
Forget about the banking industry, value resides elsewhere.
We think you should consider this truly compelling investment if you are on the hunt for short-term gains and long-term value!
It’s acall that goes against some of portfolio managers in the City, but it’s a company that offers an attractive valuation, hefty operating and net income margins, and a rock-solid balance sheet.
No matter how the market fares we believe thatthis best-in class businesswon’t disappoint you.
Click here now to find out more!
Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.