3 reasons this broker thinks the NAB share price is great value

NAB shares could be great value according to Goldman Sachs…

| More on:
Man holding different Australian dollar notes.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • NAB shares are rising on Tuesday afternoon
  • This may have been driven by a bullish broker note out of Goldman Sachs
  • Its analysts see a lot of value in the bank's shares at the current level

The National Australia Bank Ltd (ASX: NAB) share price has been a positive performer on Tuesday.

In afternoon trade, the banking giant's shares are up 1.5% to $31.20.

Why is the NAB share price rising?

There appear to have been a couple of catalysts for the rise in the NAB share price today.

One is the release of a strong update from US bank JP Morgan overnight on Wall Street. The other is a bullish broker note out of Goldman Sachs this morning.

In respect to the latter, the broker has retained its conviction buy rating and $34.17 price target on the bank's shares.

Based on the current NAB share price, this implies potential upside of 9.5% for investors over the next 12 months. This increases to approximately 14.5% if you include the $1.51 per share fully franked dividend the broker is forecasting in FY 2022.

What did the broker say?

After looking through recent updates in the sector, Goldman believes that bank margins may have found a bottom now. However, it suspects that volumes will start to slow, which means that cost cutting will become particularly important.

We think NIMs troughed in 1H21 and should start rising in 2H22E, supported by higher rates and the mix impact of less lower margin fixed rate mortgages. On volumes, we expect both system housing and business loan growth to experience a slowdown but overall remain elevated relative to pre-covid levels. We continue to see costs as a key determinant of relative sector performance particularly in light of inflationary pressures and higher investment spend.

In light of this, the broker believes NAB shares are the ones to buy in the sector right now.

We reiterate our Buy (on CL) on NAB and it remains our preferred sector exposure given: i) NAB's balance sheet mix provides the best exposure to the domestic system growth we foresee over the next 12-18 months, which should favour commercial over mortgage lending, ii) NAB's franchise is performing strongly, growing at or above system growth in most segments, iii) NAB's disclosure on NIM leverage to higher rates is even more optimistic than we previously estimated.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »