Goldman Sachs Initiates ‘Buy’ on Barclays, Predicts 27% Upside Amid Growth Plans

Goldman Sachs has started coverage on Barclays plc with a “buy” rating, signaling a significant shift for the bank as it aims to prioritize higher-return businesses.

Analysts at Goldman Sachs anticipate strong growth for Barclays, projecting an earnings-per-share increase that is nearly twice the sector average in the coming years. Despite a more than 40% rise in Barclays’ share price this year, it still trades at a discount relative to its historical performance and the wider European banking sector.

Goldman Sachs has set a price target of 290 pence for Barclays, suggesting a potential upside of 27% from current levels.

This optimistic outlook is largely attributed to Barclays’ strategic plan to redeploy capital within its UK operations and adjust resource allocation in its Investment Bank. The bank is expected to shift around £30 billion of risk-weighted assets to its UK franchise, which should enhance profitability through higher-return ventures, including its US credit card business and a structural hedge designed to protect net interest income from declining rates.

Analysts forecast a return on tangible equity exceeding 11% for Barclays from 2024 to 2026, which speaks to the effectiveness of its strategy. While Barclays’ investment banking division remains vital, it is under scrutiny for its capital allocation, with plans to emphasize more capital-light areas like mergers and acquisitions and equity capital markets to boost profitability. Despite expectations for growth in these segments, the investment bank will continue to grapple with high operational costs.

Goldman Sachs analysts also caution that Barclays may not meet its 12% return on tangible equity target for the investment banking division, projecting a more conservative figure of 10.9%.

This reallocation of resources carries some risks. Analysts have pointed out potential challenges, especially concerning the performance of Barclays’ US consumer banking operations and the general UK banking landscape. Additionally, the upcoming UK government budget could bring about tax policy changes that might affect the bank’s financial forecasts.

However, Barclays’ diversified global portfolio, particularly its presence in the US, is expected to provide a buffer against localized challenges.