Big target upgrades for Barclays and NatWest shares

As investors digest latest results from the banking sector, analysts have been busy reworking their figures. Here’s what they think these banks are worth.

18th February 2025 13:25

Graeme Evans from interactive investor

Sweetened City price targets have helped to reignite the shares of NatWest Group (LSE:NWG) and Barclays (LSE:BARC) after the initial lukewarm reaction to their forecast-beating annual results.

Supporters of NatWest include Goldman Sachs after it upped its valuation estimate to 577p, representing a further 30% upside for a stock that has doubled in the past year.

UBS and JPMorgan added 10p to their Barclays’ price targets, with the latter’s new position at 370p, pointing to a further 20% advance on today’s level of 308.6p. Shore Capital added 45p to its target to give a new ambition of 390p.

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Shares of both companies have shown a return to form so far this week, but remain little changed on where they were before a bout of results-day profit taking.

Fourth-quarter profits by Barclays were 4-5% ahead of consensus but 2025 guidance in line with forecasts provided the trigger for a negative reaction on Thursday.

As a particularly crowded trade and with a rise of more than 100% since last year’s annual results, UBS said this near-term response appeared to be understandable.

However, it flagged the potential for further upside given that the bank’s cash-flow generation appears significantly undervalued based on UBS’ own conservative forecasts.

UBS’ projections point to a combined dividend and share buyback yield of more than 30% across the next three years, including a total 9.4% in the current financial year.

The City firm sees potential for larger payouts should the investment banking division deliver on expectations and regulatory headwinds ease in US credit-card lending.

With a new price target of 350p, UBS said: “With substantial upside in our base case and higher earnings a plausible prospect, we remain buyers.”

On NatWest, the bank has retained its 510p price target after Friday’s fourth-quarter headline profit figure came in 17% above the City consensus.

Factors in the stronger performance included tailwinds from the use of structural hedges to smooth out interest rate volatility, as well as solid balance sheet growth, good cost control and the boost to earnings multiples from a lower share count.

UBS left its 2025 forecasts unchanged but 2026-27 estimates are up 2% on higher income expectations. It has NatWest trading at 6.9 times forecast 2025 earnings.

The company’s new targets for 2025 included return on tangible equity in the range of 15-16%, which compared with the consensus 15.7%, and for a figure greater than 15% in 2027.

Bank of America said the fourth-quarter results and new guidance pointed to a “story of sustainable quality”.

It said a new dividend-to-earnings payout ratio of 50% looked to be the key highlight, adding that a dividend yield of 6-7% in 2025 and 2026 would put NatWest in the top-end of UK banks.

Bank of America added: “While 2025 and 2027 guidance were not significantly ahead of consensus, they demonstrate confidence in the sustainability of returns.”

It said the shares are not particularly cheap, but with scope for a “simple, sustainable mid-teens RoTE [Return on Tangible Equity] bank” to continue re-rating. It has a price target of 500p.

Graeme Evans owns NatWest shares.

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