The NatWest share price is surging this year, helped by the growing profits and rotation towards European banks. It has soared in the last five straight weeks, and is hovering at its highest level in 17 years, making it one of the best-performing bank stocks in the UK. So, is NWG a good investment ahead of earnings?
NatWest share price surges ahead of earnings
The weekly chart shows that the NWG stock price has been in a strong uptrend after bottoming at 75.68p in 2020. It has soared to 450p, a 500% surge, transforming it into a $45 billion behemoth.
The chart shows that the stock has risen in the last five weeks and has remained significantly above the 50-week and 100-week Exponential Moving Averages (EMA). It has moved above the key resistance point at 275.7p, its highest swing in January 2023.
The Average Directional Index (ADX) has moved to 40, a sign that the stock has a strong momentum going on. NatWest’s MACD indicator has continued rising, signaling that it has a strong momentum.
The Relative Strength Index (RSI) has continued rising and is nearing the overbought level at 72. Therefore, the stock will likely soar as investors embrace the Fear of Missing Out (FOMO) and the trend continues.
There is a risk that the NatWest share price may drop in the coming weeks as it faces mean reversion. Mean reversion is a situation where a stock or any asset moves drop and approach the 50-week moving average level.
NWG earnings ahead
The NatWest share price has done well after Barclays released strong financial results. Barclays said that its full-year pre-tax profit rose by 24% to £8.1 billion, higher than the expected £8.08 billion.
The company’s business was boosted by the trading division that benefited from the Trump bump. The company also announced a fresh £1 billion share repurchase program and continued to slash costs across all divisions.
These results bode well for NatWest, which releases its financial results on Friday. As a recap, the most recent third-quarter results showed that its total income rose to £3.7 billion. Its net impairment slowed to £245 million as the net loans to customers rose by over £8.4 billion.
Analysts anticipate that the net interest income will be £2.9 billion, bringing the full-year figure to £11.2 billion. Its total income will be £3.71 billion and its annual figure will be £14.5 billion. This will bring its profit for the fourth quarter to £965 million.
Analysts believe that NatWest’s business will do well in the next few years, with its estimated net interest income rising from £12.9 billion in 2026 to £13 billion. This is a notable since the Bank of England (BoE) is expected to continue cutting interest rates in the coming months.
The BoE has already slashed rates three times, and in its meeting this month, it cut them by 0.25%. Low interest rates hurt banks by reducing the net interest margin. In an emailed note to Invezz, an analyst from Wedbush said:
“NatWest is positioned well for growth this year. However, we should be careful of the Bank of England’s policies, potential trade war with the US, and the fact that the British economy is slowing. Competition is also rising, which could hit interest margins in the future.”
However, low rates can also stimulate an economic growth and lead to higher deposits. That’s because investors often move their cash from banks to higher-yielding assets when interest rates rise. This explains why the net income margin of most banks have slowed recently.
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