Santander share price forecast for 2021: is the €3 threshold within reach?
14:00, 12 February 2021
Santander shares have been hovering between the €2.3 and €2.9 level ever since the Pfizer vaccine news was released as investors expanded their multiples for the financial sector once they saw a clearer path away from the Covid-19 crisis.
However, this consolidation has already been going on for three months, with the price rejecting a move above the €2.9 threshold multiple times – a level that previously served as support but that has now turned to resistance since the pandemic started.
Meanwhile, with central banks still neck-deep into their accommodative policies and no plausible turning point on the horizon for such a stance, the outlook for Santander shares doesn’t seem too promising, unless the bank starts to shift its business model to other – more profitable – areas outside of traditional lending.
So, in this particular environment, is Santander stock a good buy?
The following Santander share price forecast will take a closer look at the bank’s fundamentals, while also surveying the market’s current opinion about the Spanish financial institution.
Santander share price analysis
Last year, Santander shares lost almost 30 per cent of their value as the banking sector in Europe was one of the most affected by the pandemic, with investors fearing – probably until now – that higher unemployment levels and a wave of business bankruptcies could result in higher default rates and solvency issues for financial institutions.
Investors’ pessimist perceptions of banks back then was reflected in the fact that the stock lost almost 15 per cent more than the Spanish IBEX 35 index during the year, although it managed to trim some of its deeper yearly losses (at some point in the year the stock had plunged by almost 60 per cent).
Since the start of 2021, Santander shares advanced almost 12 per cent – effectively outpacing the IBEX 35 by that same figure, as the value of the benchmark has stood virtually unchanged since January 1.
That said, Santander shares are now encountering strong resistance at the €2.9 level, as market players keep struggling to push the price above this long-dated key threshold.
The chart above indicates how important this level has been for the bank’s shares in the past, serving as support in previous years but now apparently turning to resistance, as the situation for the banking sector remains relatively depressed amid the sustained impact of the pandemic in global monetary policies.
Interestingly, Santander held a total of €173m in small-to-medium enterprise (SME) loans by the end of 2019 – roughly 19 per cent of its entire loan portfolio – while it also held almost €190bn in consumer loans and other household loans (excluding mortgages), which are heavily exposed to the economic headwind caused by the pandemic.
Meanwhile, with the bank primarily generating its income from traditional lending activities, it is fairly understandable that the market continues to be skeptical about the bank’s ability to grow its profits in the near future, especially as it remains heavily exposed to virus-battered sectors and geographies.
Moreover, governments have made a big effort to cushion the temporary downturn caused by the health crisis but once those subsidies and fiscal aids are off the table, and the true economic impact of the virus becomes obvious, Santander could face strong pressures if unemployment in Europe and Latin America – the bank’s largest geographical revenue segments – remains high.
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Santander share price forecast for 2021
So, what does the latest Santander share price trend tell us about the market’s perception of the bank’s future?
The top word that comes to mind when describing what’s going on with Santander shares is: indecisive.
The fact that the stock is currently hovering between the 0.382 and 0.5 Fibonacci retracement levels shown in the chart above is that market players are not yet prepared to push the stock any higher until further positive catalysts justify such a move.
At the moment, that positive catalyst could be an evident turning point in the virus crisis, possibly of a similar magnitude of the Pfizer vaccine news.
A strong drop in the rate of contagions across multiple latitudes could be a catalyst.
That said, there are also some negative catalysts that could cause a plunge in Santander’s share price, such as a strong deceleration in Europe’s economic growth.
Meanwhile, the collapse of virus-battered sectors that are still far from recovering from the fallout caused by the health crisis could also endanger the firm’s short-term outlook. In this regard, a few sectors such as commercial aviation and hospitality ring a bell.
For now, the path of least resistance seems down for Santander shares, which means that the share price might not move past the €3 threshold until the macro landscape changes.
Santander shares: buy or sell?
This view seems to be shared by analysts, as the consensus 12-month Santander stock forecast currently stands at €2.76 according to data compiled by MarketBeat.
At the moment, only five out of the 13 analysts surveyed by the website hold a bullish view on the stock while two have rated the stock a sell.
Notably, UBS, Goldman Sachs, and Barclays are currently rating the stock a buy, with their price targets currently standing above the €3 level, while others, such as Jefferies and Berenberg Bank, have accompanied their sell recommendations with price targets below €2 per share.
One thing we can interpret from these recommendations and targets is that the current market price of €2.8 per share is very close to the top of the market’s forecasts, while the technical thresholds are also an obstacle for the stock’s advance.
So, is Santander stock a good investment? Well, if Goldman Sachs’ target of €3.45 – the highest among analysts – for the stock were to be hit over the coming 12 months, traders stand to collect a 23 per cent gain if they take a long position now.
However, there are multiple negative catalysts and risk factors that can play against this achievement, which means that the odds of hitting that particular target during that period are not as high as one would like.
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