2014 has been a challenging year for investors in Barclays (LSE: BARC) (NYSE: BCS.US), with the banks share price falling by 11% since the turn of the year. A key reason for this has been continued uncertainty regarding the global economy, as well as allegations of wrongdoing and fines causing investor sentiment in the bank to weaken.
Looking ahead, though, Barclays is forecast to deliver rapid earnings and dividend growth. Could they be enough to drive its share price to 350p? Or, will declining sentiment mean they plunge to 150p?
As mentioned, Barclays has a bright future. For example, it is forecast to post earnings per share (EPS) growth of 23% in the current year, and a further 27% increase next year. This means that Barclays bottom line is due to be a whopping 56% higher in 2015 than it was in 2013 and, while impressive, this figure is even more so when you consider that Barclays remained profitable throughout the credit crunch. In other words, it is not starting from a particularly low profitability base, which makes its forecast growth rate all the more appealing.
Improved earnings figures, of course, mean that dividends are likely to rise. For example, Barclays is forecast to pay out dividends per share that are 44% higher in 2015 than in the current year, and this means that Barclays could be yielding as much as 3.9% next year. This puts it firmly into income territory and means that demand for its shares could increase through 2015, with low interest rates set to remain in place over the medium term.
Clearly, Barclays and its banking sector peers are continuing to endure a period of allegations of wrongdoing that sometimes results in a fine. In Barclays case, forex investigations and alleged wrongdoing in its dark pool trading system have held shares back in recent months, with further PPI claims also having the potential to have a detrimental impact on the companys share price in 2015. Furthermore, with the Eurozone continuing to endure a challenging period, it could have a knock-on effect on the performance of Barclays moving forward.
This uncertainty, though, seems to be priced in, since Barclays trades on a very low valuation. For example, its price to earnings (P/E) ratio is just 11.8 and, when the aforementioned strong growth is taken into account, it means that Barclays trades on a price to earnings growth (PEG) ratio of just 0.5. This highlights that strong growth could be on offer at a very reasonable price, and also that Barclays current share price seems to offer a relatively wide margin of safety.
As such, and while further negative news flow cannot be ruled out, Barclays seems to offer excellent value for money at its current price level. As a result, a share price of 350p seems far more likely that 150p in 2015, with Barclays earnings growth forecasts, income potential, and great value share price being the key reasons for its appealing capital growth prospects.
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Peter Stephens owns shares of Barclays. 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.