Can the Macquarie share price go to $200?

It has been a very interesting year for shareholders in all industries.  Market shocks and rebounds have become the norm in 2020.

The Macquarie Group Ltd (ASX: MQG) share price has been no different. It fell to as low as $70.45 in March and has now recovered to $128.96 (at the time of writing). So the question I was asked recently was: Can the Macquarie share price hit the $200 mark?

Macquarie share price at a glance

Valued at $47.47 billion, Macquarie is Australia’s fifth largest company on the ASX by market capitalisation.  The company specialises in global banking, financial, advisory, investment and fund management services.

Over the past few years, Macquarie has further diversified its business model, providing protection against future recessions.  It’s strong capital position and robust risk management framework has contributed to the company’s 51-year record of unbroken profitability.

The economic outlook

The uncertain economic environment resulting from the coronavirus pandemic has certainly cast an unclear picture of the Australian banking industry.  What once was deemed safe blue-chip shares with reliable dividends has been marred with share price volatility and slashed surpluses affecting pay-outs to shareholders.

While banks tend to do well in times of market hysteria, cashing in on wild price swings in, Macquarie has been no different.

In its most recent market update in July, Macquarie CEO Shemara Wikramanayake said:

Macquarie’s markets-facing businesses were down on the first quarter of 2020, primarily due to significantly lower investment-related income in Macquarie’s Capital, partially offset by stronger contributions from certain divisions in commodities and global markets.

The global powerhouse has continued to maintain a conservative approach to capital, funding and liquidity that positions the group to respond constructively to COVID-19.

At June 30, Macquarie’s cash surplus position stood at $8.1 billion, well above the Australian Prudent Regulatory Authority’s strict capital requirements. Macquarie’s common Tier 1 ratio was 13.2 percent.

Macquarie Assets Management fell to $568 billion, down 5% by predominantly FX movements.  Although its Banking and Financial Services division grew 8% in total deposits to $69 billion from the previous quarter.

Macquarie’s bullish share price rise

The global powerhouse has been on the mends to recovery from the fallout of coronavirus.  The Macquarie share price is up 84% since it bottomed out in March, sitting just below its all-time high of $152.35 achieved in late February this year.

Interestingly, Macquarie has been steadily growing its earnings per share by 10%–15% over the last three years.  Earnings per share is considered an important tool to understanding the value of a business.  It is widely use to track a company’s performance.

Should, the company be able to continue this trend, the correlation between the value of the business and the profitability reported should, in essence, send the Macquarie share price higher.

It is a growth trajectory in the works for this banking giant.

Macquarie is expected to release its half year earnings for FY21 on 6 November.

Foolish Takeaway

I do believe that the Macquarie share price will reach the $200 mark.  Of course, with the business being so resilient in the face of such challenging conditions and strong capital to back it up, it is just a question of timing.

With almost 3 months remaining, perhaps the milestone won’t be reached by the end of this year.  However, there is a strong possibility it could attain that feat in 2021.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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