Barclays is a good pick as the U.S. consumer business receives fair recognition and investment banking picks up, according to Morgan Stanley. Analyst Alvaro Serrano upgraded shares of the bank, which trade in London, to overweight from equal weight. The bank's U.S.-listed shares trade under the ticker BCS. "We think consensus underestimates the revenues in CC & P, which, together with an improved outlook in the IB, leaves us ahead of consensus for the first time," he said in a note to clients, using acronyms for the consumer, cards and payments and investment banking businesses. "We also see room for capital efficiency and up our distribution." U.S. shares advanced 2.1% before the bell following the upgrade. The stock has slipped about 2.3% in 2023, a year that has been partially defined by a crisis due to lack of confidence in the banking sector. Serrano said Barclays is "quietly gaining more scale" in the U.S. credit card business, which can improve its profitability gap compared to competitors. Simultaneously, he said stabilization in rate sentiment has bolstered the merger and acquisition pipeline. Serrano has, in turn, raised revenue expectations for the corporate and investment bank division. While expecting revenue growth in 2024 and 2025 for Barclays, he said there's downside risk to the margins of other banks in the U.K. More capital efficiency can also improve payouts, he said. With deals completed, he said share buybacks could reach 2 billion euros per year. While the cards and investment banking business have low multiples, Serrano said the earnings upgrades will ultimately push the stock higher. He also said the stock's discount to peers in the U.K. is currently tied to a lower yield, but that should be mitigated as risk-weighted assets surprise positively. — CNBC's Michael Bloom contributed to this report.
