Why Barclays shares make this portfolio of top stock picks
Despite a stellar year, the European banking sector still trades on an attractive discount to the market and overseas rivals. City writer Graeme Evans explains.
9th December 2025 13:37
by Graeme Evans from interactive investor
Barclays logo on a building in New York City. Photo: Jakub Porzycki/NurPhoto via Getty Images.
Barclays has secured top pick status at another City firm after the lender’s “attractively valued growth” prospects were flagged in a strong report on Europe’s banking sector.
UBS backed up the recommendation by lifting its price target on Barclays (LSE:BARC) shares from 455p to 515p, a further 19% upside on top of the 65% improvement already delivered in 2025.
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The upbeat stance comes as Barclays prepares to unveil strategic targets for the period up to 2028, including for the key industry benchmark of return on tangible equity.
The metric, which is post-tax profit divided by tangible equity, has improved to 12.3% in the year to date and is on course for a figure above 12% in 2026 as Barclays benefits from the stronger outlook for income and delivers efficiency savings earlier than planned.
UBS expects the bank will aim to continue this progress to more than 13% when directors present the new financial and operational targets with annual results on 10 February.
It said that Barclays had outperformed expectations in its current plan, with particular strength in the UK thanks to the structural hedges that help to smooth out interest rate volatility, plus tailwinds from the acquisitions of Tesco Bank and mortgage lender Kensington.
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UBS said it sees high-single digit earnings per share (EPS) upside to 2026 results if Barclays achieves its revenue growth target in investment banking, which has been the one area where the City consensus is notably below management expectations.
On its numbers, UBS said Barclays offered the most attractively valued EPS growth in the Europe-wide banking sector.
The bank’s target price implies a price multiple of 8.5 times forecast 2026 earnings, compared with its expectation of 10 times as the fair multiple for the wider sector.
It said this provides room for investors to assign a potentially much higher multiple to Barclays earnings, depending on the plan laid out at the strategic update in February.
The other favoured banks after UBS assembled a portfolio of top picks with fairly diverse drivers are ABN AMRO Bank NV NLDR (EURONEXT:ABN), Erste Group Bank AG. (XETRA:EBO), ING Groep NV (EURONEXT:INGA), Piraeus, Banco Santander SA (LSE:BNC) and Societe Generale SA (EURONEXT:GLE).
Last month, Deutsche Bank named Barclays among its preferences as it flagged the investment banking upside and significant ongoing benefit from structural hedges.
European banks have so far delivered a 66% total return in the year to date, which UBS said compared with the broader market at 18%.
The 57% rally in share prices reflects a 10% increase in forward EPS estimates, driven by better net interest income as well as performance on costs and impairments.
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However, UBS points out that the sector is still an attractive 36% discount to the broader equity market and substantial discount to banks in almost all other geographies. It expects a total return comfortably in excess of 20% in 2026, helped by a 5% dividend yield and roughly double-digit earnings per share growth.
Among the themes for the year ahead, it sees artificial intelligence (AI) as a key source of potential upside to near-term valuations and longer-term earnings.
It added: “We can already see industry changes in audit, law, and consulting but banks aren’t delivering improved efficiency yet, cost bases are large and fairly poorly understood and these new powerful tools are yet to be fully implemented.”
It also expects increased levels of M&A, driven by factors such as the declining returns on share buybacks as valuations rise and the need to improve strategic positioning.
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