The S&P/ASX 200 Index (ASX: XJO) bank share Macquarie Group Ltd (ASX: MQG) is seen as a compelling opportunity, according to Morgan Stanley.
The Macquarie share price has seen plenty of pain over the past year. In the last 12 months, it's down by 15%.
But, while shareholders may be nursing a financial bruise, the broker Morgan Stanley has suggested that the ASX 200 bank share could rise by more than 20% over the next year.
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Reasons for the bullish call on the Macquarie share price
According to reporting by The Australian, Morgan Stanley currently has a price target of $215 on the company. That implies a possible rise of 21% at the time of writing.
One of the main reasons for the optimistic outlook for the ASX 200 bank share is US gas price volatility. When gas price volatility increases, the company's commodities and global markets (CGM) division can generate higher earnings.
According to reporting by the newspaper, the gas price dispersion index rose by 80% year over year to a decade high in the three months to 31 December 2022.
Morgan Stanley analyst Andrei Stadnik said that the quarter for the three months to March was currently tracking at 50%. The analyst said:
We think the market gives MQG little credit for growth in commodities, but it still supports EPS [earnings per share] and dividends and generates capital for growth.
This could be important because the commodity revenue reportedly comprises around 35% of group revenue. Stadnik also reportedly noted that the European gas price volatility had remained "historically high".
The Europe, Middle East and Africa (EMEA) regions account for around 25% to 30% of CGM's revenue. If commodity revenues rise by 7.5%, then the analyst's EPS estimate will increase by 6.5%.
What is the valuation?
Using the estimated numbers on Commsec, the Macquarie share price is valued at under 16x FY23's estimated earnings, with a possible dividend yield of 3.6%, ignoring the effect of franking credits.
Of the analyst opinions that Commsec has collated, eight rate the ASX 200 bank share as a buy, five rate it as a hold, and one has a sell rating.
