Up 60% This Year, Is Barclays Stock In Overdraft Territory?

Barclays’ stock (NYSE: BCS) has gained 58% YTD, as compared to the 18% rise in the S&P500 over the same period. In sharp contrast, Barclays’ peer Bank of America (NYSE: BAC) is up 20% YTD. Overall, it is currently trading at $12 per share which is in line with the Trefis estimate for Barclays’ valuation.

Amid the current financial backdrop, BCS stock has seen extremely strong gains of 50% from levels of $8 in early January 2021 to around $12 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in BCS stock has been far from consistent. Returns for the stock were 30% in 2021, -25% in 2022, and 1% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BCS underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BCS face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The bank’s revenue and profitability numbers outperformed the consensus estimates in the second quarter of FY 2024. It reported total revenues of $7.98 billion – marginally up, primarily driven by a 9% increase in the noninterest income, almost offset by a 6% drop in the net interest income (NII). While the noninterest income benefited from growth in Barclays’ investment bank unit (investment banking and sales & trading), the NII suffered due to a drop in average customer assets. On the cost front, total expenses rose by 2% in the quarter, leading to a profit after tax figure of $1.9 billion – down 5% y-o-y (Note: Barclays reports results in GBP. Numbers have been converted to USD for ease of comparison).

The bank’s top line marginally grew to $16.8 billion in the first six months of FY 2024. It was mainly because of a 3% growth in Barclays investment bank and an 8% rise in U.S. consumer bank businesses, partially offset by a 3% drop in the Barclays UK unit. On the expense side, total expenses as a % of revenues witnessed an unfavorable increase over the same period. Altogether, profit after tax was reduced by 7% y-o-y to $4.2 billion.

Looking ahead, we forecast Barclays’ revenues to touch $33.15 billion in FY2024. Additionally, BCS’s annual GAAP EPS is likely to remain around $1.67. This coupled with a P/E multiple of just above 7x implies a valuation of $12 – around the stock’s current market price.

[1] Returns as of 8/28/2024
[2] Cumulative total returns since the end of 2016

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