The National Australia Bank Ltd (ASX: NAB) share price will be one to watch on Tuesday when the Australian share market returns to trade.
Late on Thursday analysts at Goldman Sachs responded to news that the bank's earnings would be impacted by $525 million of customer remediation costs by reiterating their buy rating on its shares.
According to the note, the broker has retained its buy rating and trimmed the price target on its shares slightly to $30.55. This price target implies potential upside of approximately 21% for its shares over the next 12 months excluding dividends.
If you add in the dividend, which Goldman now expects to be cut to 178 cents per share in FY 2019 and 179 cents in FY 2020, the potential return stretches to a whopping 28%.
Why is Goldman still positive on the bank?
Given that these remediation costs have resulted in Goldman downgrading its earnings and dividend forecasts, you might be wondering why it remains positive on the bank.
The broker remains a fan because even after cutting its dividend to 178 cents per share, it will provide a generous fully franked 7% yield.
In addition to this, the broker notes that: "underlying momentum in the business (volume and margin) remains best of peers, and with management expecting flat underlying (ex-remediation) costs over the next two years, we think underlying EPS growth will outperform peers."
Adding that: "with the stock trading at near five-year lows across a variety of valuations, we stay Buy."
Should you invest?
I agree with Goldman Sachs on NAB and believe it would be a good option along with Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) if you don't already have meaningful exposure to the banking sector.
