We are maintaining our Hold on Barclays PLC (BCS), but reducing our target price to $34. In its first quarter trading update, Barclays noted that profits at Global Retail and Commercial Banking as well as Barclays Wealth were ahead of the prior-year period, while profits declined at Barclays Global Investors and Barclays Capital, which experienced difficult trading conditions and a £1.0 billion valuation loss. Credit market exposures remained broadly flat at £36 billion in the quarter.
We are cutting our 2008 diluted EPADS estimate to $4.50 from $5.42, and initiating our 2009 estimate at $5.30. Results should continue to reflect turmoil in the US subprime and other credit markets.
Currently, Barclays is trading at 7.4X the consensus earnings estimate for 2008 and 8.2X the 2009 consensus estimate. These are well below the industry median P/E ratios of 10.8X and 9.0X, respectively, also based upon consensus estimates.
While Barclays estimated future growth is below the industry median, Barclays attractive 8.0% dividend yield should provide support for the stock price. Our price target of $34 represents approximately a 6 ½X P/E multiple of 2009 estimated earnings of $5.30 per ADS, providing a PEG ratio (P/E divided by estimated future growth rate) of 0.9X, roughly in line with the industry.
Read the full analyst report on BCS.
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