Can Barclays Find Support?

With shares of Barclays (NYSE:BCS) trading around $15, is BCS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Barclays is a global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management, and investment management services. The company operates in eight segments: UK Retail and Business Banking, Europe Retail and Business Banking, Africa Retail and Business Banking, Barclaycard, Barclays Investment Bank, Barclays Corporate Banking, Wealth and Investment Management, and Head Office and Other Operations. Banking and capital markets services are just about a requirement for most consumers and companies around the world.

Barclays — like many other large banks — still bears the scars of the financial crisis, with hefty regulatory charges and long-lasting litigation still impacting its operations Chief Executive Officer Antony Jenkins, who has pushed to implement a “fundamentally different culture” than that created by his predecessor Bob Diamond. It has also downsized the size, structure, and workforce of the second largest bank by assets in the United Kingdom in an effort to rid its balance sheet of capital-hungry loan portfolios and limit derivatives, and securities lending so as to be compliant with the global banking rules known as Basel III. The results of the British bank’s fourth-quarter earnings showed the size of the task facing Jenkins. But the goal is still to downsize, and through sources familiar with the matter, Reuters learned that Barclays is reviewing the size and shape of its investment bank so that the bank can better focus on its most profitable areas.

A Barclays spokesperson told the publication that management has no plans to change leadership at the investment bank. But the fact remains that shareholders — who have bid shares of the British bank down 13.57 percent down this year through Thursday — were outraged after Barclays announced last month that it had increased bonus payments by 10 percent to 2.4 billion pounds last year, despite the large decrease in its pre-tax profits.

T = Technicals on the Stock Chart Are Weak

Barclays stock has been in a range over the past couple of years. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Barclays is trading below its rising key averages which signal neutral to bearish price action in the near-term.

BCS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Barclays options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Barclays options

30.91%

73%

70%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Barclays’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Barclays look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-30.16%

363.48%

-124.19%

-230.21%

Revenue Growth (Y-O-Y)

-10.46%

17.03%

2.11%

29.82%

Earnings Reaction

-1.09%

1.08%

0.69%

-1.31%

Barclays has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Barclays’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Barclays stock done relative to its peers, Deutsche Bank (NYSE:DB), HSBC (NYSE:HBC), UBS (NYSE:UBS), and sector?

Barclays

Deutsche Bank

HSBC

UBS

Sector

Year-to-Date Return

-13.60%

-10.20%

-8.42%

4.94%

-5.82%

Barclays has been a poor relative performer, year-to-date.

Conclusion

Barclays is a financial services company that strives to support consumers and companies around the world. The company is reviewing the size and shape of its investment bank so that the bank can better focus on its most profitable areas. The stock has been in a range over the last couple of years and is currently pulling back. Over the last four quarters, investors in the company have been disappointed, as reported earnings have been up and down. Relative to its peers and sector, Barclays has been a weak year-to-date performer. WAIT AND SEE what Barclays does this coming quarter.

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