NAB to hit $40?

Analysts rate the company a ‘buy’ at current levels.

Despite rising by 54% in the past 12 months, a number of analysts have come out recently predicting further price rises are on the horizon for National Australia Bank (ASX: NAB).

One of the most recent and significant is the analysis by long-term critic Brian Johnson, which put a $40 price target on the company. Mr Johnson, who is widely regarded as Australia’s best bank analyst, believes that the bank has turned the corner after what he sees as a decade of mistakes.

Certainly, the bank’s share price has justifiably lagged its competitors over the medium term as the poorly timed entry into the UK market, the $4 billion writedown of US lending operation Homeside, a $600 million technology blowout, and the $360 million forex trading scandal have held back the share price. The failures have resulted in only 12% earnings per share growth in the 12 years to 2012, compared to an average of 137% for the other major banks.

The analysis focused on the long-term discount on the share price as a result of the frequent disappointments, however Mr Johnson is now of the opinion that there are seven main factors which have transformed the outlook for the business:

  1. Improved management,
  2. Reduced risk of large scale sell-offs
  3. Current discount to intrinsic value
  4. Reduced risk profile
  5. Strong earnings per share growth
  6. Improved UK economic conditions
  7. Better return on equity compared to rivals

The report followed Goldman Sachs broker Richard Coppelson recently telling investors to sell Commonwealth Bank (ASX: CBA) and buy NAB, noting that if it can deliver earnings per share growth equivalent to its peers it should outperform.

Similarly, Morningstar recently upgrades its guidance on NAB to a price target of $38, as profit growth is expected to accelerate as funding costs decline. The analysis also liked the 5.5% fully franked yield and the potential for relatively strong dividend growth in coming years.

Foolish takeaway

All foolish investors will know that past performance is no guarantee of future success, or in this case, failure, and NAB has a number of catalysts which may result in outperformance of the stock after a long period of disappointment. Risk adverse investors may be inclined to pick up some NAB shares during any pullback in the Australian share market.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest …

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »