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I Barclays (LSE: BARC) share price has been one of the biggest riders in FTSE 100 this year, it has increased by 72% since the beginning of January.
I want to invest more money in the financial sector at the beginning of 2025. Right now, I think NatWest Group maybe it has a limit. But Barclays is running a close second, and things can easily change by the time I’m ready to buy.
More to come
Analysts remain very bullish on Barclays, placing one of the strongest ‘buy’ ratings I see on FTSE 100 right now.
They have a share price target increase on the cards, from 9% to 288.5p. But that’s based on the next 12 months, and earnings forecasts continue well beyond that.
We’re looking at a price-to-earnings (P/E) ratio of 7.5 this year, falling to 5.5 in 2026 if forecasts improve. And if they do, the current target price may look meaningless.
One thing that might turn me off is the profit forecast that will produce only 3.3% this year, and only 3.8% in 2026. That’s mainly what puts NatWest ahead of my rating at the moment, with its expected yield of 6% through 2026.
A strong opinion
Although Barclays’ is not the biggest shareholder in the sector, the bank aims to return more money to shareholders in the coming years.
During Q3, it said “plans to return at least £10bn of cash to shareholders between 2024 and 2026, through dividends and share buybacks, through continued stock options“.
That’s worth more than a quarter of Barclays’ total market capitalization. And I prefer to return a short period like this to pass by buying back from, say, special shares.
But what could disrupt these wonderful prospects?
It’s not easy sailing
There are still many potential obstacles on the road ahead.
Falling interest rates should reduce borrowing costs. And Barclays is exposed to US rates too, through its international banking arm. Still, any regulatory relaxation by the incoming Trump administration would help.
Again, those predictions for this year and the next two may look good. But when is the last time we remember bank forecasts going as planned, without interruption, for three years in a row? I’m not sure I’ve ever seen it.
Barclays has undergone a transformation over the past year. It brought in cost reduction and refocused on the important aspects of the business. That should be good in the long run, but it brings uncertainty to the team.
Also, despite my preference for buying, I think Barclays’ low dividend yield could drive investors away from others in the sector. The dividend, after all, is one of the headline measures that hit us first.
So will Barclays be my top banking choice in early 2025? In these thoughts, maybe not. But a lot can happen between now and then.
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