Investing.com -- Goldman Sachs (NYSE:GS) has initiated coverage on Barclays plc (LON:BARC) with a "buy" rating, marking a moment for the bank as it embarks on a shift to prioritize higher-return businesses.
Analysts from Goldman Sachs forecast robust growth for Barclays, citing an expected earnings-per-share increase that is nearly double the sector average over the next several years.
Barclays' share price, which has risen more than 40% year-to-date, still trades at a discount compared to its historical performance and the broader European banking sector.
Goldman Sachs' price target for Barclays is set at 290 pence, indicating a potential 27% upside from current levels.
The rationale behind Goldman’s positive outlook is largely based on Barclays' strategic focus on redeploying capital into its UK business and reallocating resources within its Investment Bank.
Barclays is expected to shift approximately £30 billion of risk-weighted assets into its UK franchise, boosting profitability through higher-yielding ventures such as its US credit card business and the structural hedge that protects net interest income from the effects of declining rates.
The bank's approach is viewed favorably, with analysts forecasting a return on tangible equity of over 11% between 2024 and 2026.
Barclays' investment bank remains a crucial pillar, though under scrutiny for capital allocation. Goldman Sachs highlighted that Barclays aims to steer its Investment Bank towards more capital-light areas, such as M&A and equity capital markets, to improve profitability.
While the bank's earnings from these segments are expected to grow, the investment bank will still face challenges related to high operational costs.
Goldman Sachs’ analysts also noted that Barclays might fall short of its 12% ROTE target for the division, projecting instead a more conservative 10.9%.
This rebalancing effort is not without risks. Goldman Sachs analysts have flagged potential headwinds, particularly surrounding the performance of Barclays' US consumer banking business and the broader UK banking environment.
The upcoming UK government budget, set for later this month, could introduce tax policy changes that might impact the bank’s financial outlook.
Nonetheless, Barclays' diversified global portfolio, with its US presence, is seen as a buffer against localized challenges.