Barclays Earnings Preview

British banks are riding high on the UK economic recovery and rising rates environment and it is possible Barclays could reward shareholders with a share buyback.

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The good news

Like other UK banks, Barclays has outperformed over the last three quarters. It has reported earnings at the top of the estimate range and well above consensus for a year now. As is usual for banks, Q4 earnings are expected to be lower than prior quarters, but substantially higher than the same quarter last year.

The median estimate for earnings is $0.24, on a median estimate of $7.0B in revenue.

Barclays has benefited from increased consumer spending in the UK during the recovery and fewer than expected impairments. But where Barclays is head-and-shoulders above its peers is in the investment banking sector, which has been generating a lot of the bank's profits.

Going forward

From the standpoint of shareholders, the biggest issue is what the bank plans to do with the "windfall profits" from lowering its provisions. There is a good chance the Board might announce a share buyback program. A substantial buyback commitment could offset any other issues.

Focusing on the investment bank might have paid dividends in the more volatile period of the pandemic, but investors might be wary of how that division will perform going forward. With interest rates expected to rise, Barclays does stand to benefit from any increased volatility in bond and other markets.

The outlook section of its earnings report might get most of the market's attention, particularly regarding their expectations for interest rates and economic growth. Other banks in the UK reported increasing costs and had to pull in expectations as a result, and Barclays might go down the same route.

BARC’s decade-long bear market

The Barclays share price has been contained by a downtrend line that has been in place since the stock market bottomed in 2009. But as of this month, the price has broken back above the trendline and pulled back to sit just on it ahead of the release of Barclays Q4 results.

If the breakout holds, then it could be the beginning of a new long-term uptrend in the stock. The most significant long term resistance is 360p, where the trendline began. Should the price reach there it would be an 80% rise in the share price.

However, should the price drop back into its trading range under the downtrend line, the share price risks dropping back to 150p then possibly 125p, which was support between 2012 and 2020.

Source: Spreadex trading platform

Key takeaways

Much attention is expected around the bank's outlook and how the bank will fight higher costs in the future. If the board announces stock buybacks this could offset rising costs and boost the stock higher. If they don’t, and dividend payouts decrease due to increasing costs, investors might sell the stock.

Participants should also focus on the bank's investment banking, the most profitable division. Good FICC (fixed income, commodities & currencies) trading results, along with lower provisions should support bullish sentiment.