Barclays Stock a Top Pick at Morgan Stanley – UK Banking Resilience Stands Out

In a note covering bank stocks on Thursday, Morgan Stanley analysts picked out Barclays (LON: BARC) as a new top pick, citing the resilience of the UK banking sector as a key factor.

In a recent note, the firm highlighted the UK's strong position in benefiting from lower interest rates, which could provide significant upside for banks like Barclays.

“UK resilience stands out,” Morgan Stanley analysts said, emphasising that the early pricing moves following recent rate cuts suggest potential for higher-than-expected net interest income (NII).

They note that NatWest, for example, has already reduced its Instant Access offering by 15 basis points, or 60% of the rate cut, exceeding Morgan Stanley's initial projections.

If similar actions are taken across the sector, the US investment bank says this could imply a 3% increase in NII over the 2024-2026 period.∂

Given this positive outlook, Morgan Stanley has replaced Commerzbank with Barclays as a top pick.

Morgan Stanley argues that Barclays is attractively valued, trading at just 6 times its expected 2024 earnings and offering an almost 12% total yield.

“We believe the valuation of the sector remains attractive,” they stated, adding that despite macroeconomic uncertainties, the fundamentals for UK banks are solid.

Morgan Stanley's top picks now include Lloyds, Barclays, Intesa Sanpaolo (ISP), Mediobanca (MB), and KBC.

As the UK continues to navigate through economic challenges, Barclays' strong position in the market makes it a standout choice for investors looking to capitalise on the resilience of the UK banking sector.