Barclays Share Price Down 6% in June – Time to Buy Barclays Shares?

Banking shares have rebounded in 2021 and Barclays (BARC.L) stock is up 44% so far in 2021. However, the shares fell 1.4% on Friday taking their June losses to 6.1%. Is it time to buy Barclays shares now?

2020 was a rough year for the banking sector. There were high loan losses amid the COVID-19 pandemic, and investors, in general, shied away from investing in banking shares. To add to the woes, British banks were barred from paying dividends as the regulator instead wanted them to preserve the cash to strengthen the balance sheet.

Barclays shares rebounded in 2021

Meanwhile, 2021 turned out to be a different ballgame for markets. High growth tech shares which were market favorites in 2020, fell out with investors this year amid the economic recovery and strengthening bond yields. Higher future interest rates mean that growth shares become less attractive as most of their earnings are skewed towards the future.

Meanwhile, investors bought into recovery and cyclical shares. Banking shares including Barclays, benefit from the increase in long-term rates. The banking business revolves around borrowing on the short end of the yield curve and lending on the long end. Higher long-term interest rates coupled with a steepening of the yield curve triggered buying spree in banking shares. Banking shares like Barclays are also a play on the recovery story as higher economic growth will lead to more demand for loans and also bad loan provisioning is expected to come down in 2021 as compared to the last year.

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Barclays announced dividend resumption

Earlier this year Barclays resumed the annual dividend and also repurchased shares after the UK watchdog relaxed restrictions. US banks will also be able to increase their dividends in the second half of the year. BARC could further hike dividends as the economic environment improves.

Technical analysis

Barclays shares have fallen below their 50-day SMA (simple moving average) amid the recent correction in the share price. However, the shares might be getting oversold now as the 14-day RSI (relative strength index) is at 35 which is not far away from the oversold levels of 30.

Barclays shares look undervalued

Barclays shares currently trade at an NTM (next-12 months) PE multiple of 7.1x which is the lowest it has traded in the last year. Its NTM PE multiples ahs averaged 10.7x, 8.9x, and 9.7x respectively over the last one year, three years, and five years. The shares look undervalued looking at the valuation discount over its long-term multiples.

Meanwhile, for banking shares, we also need to look at the price to book value multiple. While releasing its fiscal first quarter 2021 earnings, Barclays said that its tangible net asset value (TNAV) is 267p per share. The share currently trades at 176.4p which is a discount of almost 34% over the TNAV.

Barclays has a price-to-book value multiple of 0.52x. The multiple has averaged 0.63x over the last ten years. However, the multiple is higher than the 0.46x that it has averaged over the last three years.

Barclays share price forecast

Analysts have a bullish forecast for Barclays shares. Its average target price of 209.7p is a premium of 10% over current prices. Of the 13 analysts covering the shares, nine have a buy rating while the remaining four have a hold rating. In June, several brokerages have raised their target price on BARC shares.

This month, JPMorgan Chase has increased Barclays’ target price from 210p to 230p. Jefferies also reiterated its buy rating and assigned a target price of 300p which is the street high target price. Goldman Sachs also reiterated its buy rating and assigned a target price of 250p on BARC.

BARC stock outlook

The bank has a strong balance sheet and at the end of March, it had a tier 1 capital ratio of 14.6% which is higher than the 13-14% that the bank targets. The company’s payments business is also a long-term value driver. During the first quarter 2021 earnings call, Barclays said that “Taken as a whole, we believe our payments complex can generate an additional GBP900 million of income over the next three years.”

Overall, BARC shares look like a good buy at these prices. The strong momentum in the global economic activity bodes well for all banking shares including Barclays. However, investors should watch the evolving COVID-19 situation in the UK, which is Barclays’ biggest market.

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