We are maintaining our Hold on Barclays PLC (BCS), an international financial services group engaged primarily in banking, investment banking, and asset management. In its first half report, Barclays posted net earnings of £1.7 billion, down 35% year over year and below our estimate due to higher impairment and provision charges from credit market dislocations at Barclays Capital.
Most other units performed reasonably well in view of the circumstances. We are cutting our EPADS estimates to $4.00 from $4.50 for 2008 and to $4.50 from $5.30 for 2009, partly reflecting dilution from the issue of 1.6 billion shares in July. In addition, results should continue to reflect turmoil in the US subprime and other credit markets. Positively, Barclays reduced credit market exposures by £5.1 billion during the half. We believe the dividend is safe.
Currently, Barclays is trading at 7.5X the consensus earnings estimate for 2008 and 7.1X the 2009 consensus estimate. These are well below the industry median P/E ratios of 10.1X and 8.4X, respectively, also based upon consensus estimates. While Barclays estimated future growth is below the industry median, Barclays attractive 9.4% dividend yield should provide support for the stock price.
Our price target of $30 represents approximately a 6 ½X P/E multiple of 2009 estimated earnings of $4.50 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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