The National Australia Bank Ltd (ASX: NAB) share price has been outperforming the S&P/ASX 200 Index (ASX: XJO) this year. Can the shares keep rising?
In 2022 to date, the ASX 200 has fallen 5%. In comparison, the NAB share price has gone up 6%.
But, as the saying goes, past performance is not a guarantee of future performance. So can NAB shares continue to perform?
While it's impossible to know precisely what a share price is going to do, we can gain insights from what the company says. Analysts can also outline their research and opinions.
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NAB commentary
Last month, NAB said that recent data highlighted ongoing strength in the Australian economy. It's expecting consumption to remain robust, partly supported by a run-down in accumulated household savings.
NAB also said there was a healthy outlook for business investment with high levels of dwelling investment and government spending, supporting forecast GDP growth of 3.4% in 2022 and 2.1% in 2023.
In addition, the big four ASX bank is expecting the unemployment rate to remain low "for some time".
NAB also said that it's optimistic about the growth outlook. The bank said that its investments positioned it well, "particularly at a time when business investment intentions are high and business credit is growing at the fastest rate since the GFC".
It's focused on cash earnings per share (EPS) growth in a period of higher growth, higher inflation and higher interest rates. Within the business, its lending growth has accelerated and it's focused on productivity. It's expecting cost growth of between 2% to 3% in FY22.
Broker opinion on the NAB share price
The broker Ord Minnett does think that NAB shares can keep rising. It has a price target on the bank of $34.50, which implies a possible rise of around 10%.
Ord Minnett thinks that NAB will benefit from rising interest rates, helping the net interest margin (NIM).
Based on the projections, the broker calculates that the NAB share price is valued at 15x FY22's estimated earnings and 13x FY23's estimated earnings. The NAB grossed-up dividend yield in FY22 could be 6.8% according to Ord Minnett.
However, it was recently pointed out by the broker Morgan Stanley that the big four ASX banks could be impacted by stressed exposure in the construction sector in the event of a downturn.
The NAB CEO Ross McEwan himself said about the construction industry:
It's certainly one of the sectors that we are keeping a close eye on very recently.
A lot of them have been having some difficulties there so that is, as a sector, the most worrying part of our bank when we look across it.
We are yet to see that the economy is having difficulty…but as interest rates start to rise, we have to be conscious that there will be some customers who may have some difficulties.
Morgan Stanley's rating on the bank is 'equal-weight', with a price target of $31.80. The rating is essentially a 'hold' or 'neutral'. The price target implies a slight rise over the next year.
The broker's numbers put the NAB share price at 15x FY22's estimated earnings and 14x FY23's estimated earnings. Morgan Stanley's dividend estimate for FY22 implies a grossed-up dividend yield of 6.8%.
