Right now I’m looking at some of the markets most popular companies, to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Santander (LSE: BNC) (NYSE: SAN.US) to ascertain if its share price can return to 1,122p.
Initial catalyst
As usual, before we establish whether or not Santander can return to its all-time high of 1,122p per share, we need to establish what caused it to move there in the first place.
It would appear that Santander reached this all-time high in the middle of May 2008, just before the financial crisis took hold. This indicates that for the most part, the banks rise to this all-time high was driven by the market’s general positive mood.
That being said, Santander did report earnings per share of 74p for 2008, so on this basis, at a price of 1,122p per share, the company was only trading at a forward P/E of 15.2. Back during 2008, a forward P/E of 15.2 was not too taxing as many of Santander’s peers were trading at P/E multiple above 20.
But can Santander return to its former glory?
Fortunately, thanks to its global diversification, Santander was one of the few banks to escape the financial crisis without a bailout.
Furthermore, it would appear that the bank has all the foundations in place to return to its all-time high. Indeed, since 2008 Santander’s assets have expanded approximately 20% and the bank now has slightly under 1.3 trillion euros in assets. Shareholder equity has also expanded nearly 30%.
All in all, this implies that if Santander can achieve a return on equity of 15%, similar to the level achieved during 2008, the bank’s net income will be a record 11.2 billion euros. A record net income of 11.2 billion euros would mean that the bank would earn 79p per share, justifying a return to 1,122p in the long term.
However, Santander is currently grappling with the hostile economic environment within the eurozone. As a result, City analysts currently expect the bank to report full-year earnings of 34p per share for this year and then 42p for 2014, putting the bank on a forward P/E of 12.3 at current levels.
Still, Santander’s banking sector peers currently trade at a P/E of 15.8 so the company currently looks undervalued in comparison to its peers.
Foolish summary
All in all, I feel that Santander has all the building blocks in place to make a return to 1,122p in the long term. Â