Can investors bank on more Macquarie share price gains?

The Macquarie [ASX: MQG] share price has surged more than 25% in the past six months, but with the inflation rate climbing, could the stock be facing a difficult period?

Despite some major brokers remaining bearish on the stock, Citigroup has boosted its rating from ‘Hold’ to ‘Buy’, after the Australian investment bank exceeded consensus expectations in its latest earnings update.

Is investing in Macquarie a viable long-term option, or should investors be wary of rising inflation and the potential negative impact on Macquarie’s share price?

What’s happening with the Macquarie share price?

The Macquarie share price has surged 26.98% in the last six months, and 47.24% over the last year, after closing on Monday 8 November at A$200.90. The shares are fresh from hitting an all-time intraday high at A$204.22 on 5 November.

Since sinking to $80.01 in March 2020, Macquarie’s share price has jumped 151.09% in just over 18 months, rising 58.80% from the 52-week low of $126.51 on 1 February this year.

Consensus-beating results improves outlook

Citigroup’s bullish upgrade follows Macquarie’s first-half results on 30 September, after net profit leapt 104% to $2.04bn, with assets under management (AUM) up 31% to $737m. As a result, the board announced an interim dividend of $2.72 per share, up 101% year-on-year versus $1.35 per share. Not only did profit surpass consensus estimates by 6%, Citi also noted it was the fourth consecutive quarter where net profit broke $1bn.

Macquarie CEO, Shemara Wikramanayake, said: “This first half saw a significant increase in net profit contribution from all four operating groups compared with 1H21, a period which was affected by the Covid-19 pandemic. Today’s result is consistent with a strong 2H21 and reflects improved trading conditions across our diverse platform.”

Analysts at JP Morgan are also upbeat on the outlook for Macquarie’s share price, highlighting the “standout” performance of its commodities and global markets segment, with net profit after tax jumping 60% year-on-year. The broker expects Macquarie to continue to perform strongly, buoyed by the current volatility in commodity markets, underlining further potential upside in the Macquarie share price.

Bank looks to new opportunities with equity raise

Macquarie refuses to rest on its laurels, having completed an equity raising of $1.5bn last Monday, reports the Motley Fool. Institutional investors were offered new shares at $194, a 3.3% discount to Macquarie’s share price at the time. Shareholders will also have the opportunity to apply for a further $30,000 worth of shares, through a share purchase plan. The extra funds give the bank greater potential to invest in new opportunities, as well as to strengthen its balance sheet.

Wikramanayake said: “Having deployed $A5.5bn of capital over 2H21 and 1H22, we continue to see a strong pipeline of opportunities. Raising new capital provides us with additional flexibility to invest in new opportunities where the expected risk-adjusted returns are attractive to our shareholders, while maintaining an appropriate capital surplus.”

Volatile commodity markets could boost Macquarie share price

While the looming threat of a rise in interest rates could negatively affect the bank’s earnings, this potential headwind is likely to be offset by volatility in commodity prices, report the Motley Fool. Citigroup said in its note that “the upgrade to guidance since the recent AGM suggests that MQG is well placed to be a material beneficiary of an evolving energy crisis.”

Citi added: “Business capital deployed into CGM [commodities and global markets] is supportive of increased trading activity and a more sustainable revenue platform, of which commodities is a key driver that we expect will peak at $2.8bn in FY22 but roll off to a higher base.”

The boost in equity investments here could help to drive higher earnings, and may have a positive knock-on effect on the Macquarie share price.

"MQG is well placed to be a material beneficiary of an evolving energy crisis" - Citigroup

What’s next for Macquarie’s share price?

Macquarie’s share price potential has been lifted by the recent upgrades. Citi boosted its 12-month price target from $200 to $226 a share, marking a potential upside of 12.49% on Monday’s close at A$209.90. Citi said: “The unprecedented market conditions for asset sellers, combined with the most serious energy crisis since the 1991 Gulf war, should enable Macquarie to continue this streak for at least the next two quarters.”

JPMorgan has followed suit, saying that Macquarie’s growth should be “well supported by the significant capital into all operating divisions that occurred in 2HFY21”, adding that the stock’s “valuation looks attractive”. JPM has placed a price target of $207 on Macquarie’s share price, implying an upside potential of 3.04% versus Monday’s close.

Overall, Macquarie has a consensus average price target of $211.62 according to the Wall Street Journal (WSJ), with a high target of $245 and a low of $174.28. The average price target represents a potential upside of 5.34% on Monday’s close. And with six ‘Buy’, two ‘Overweight’, four ‘Hold’ and one ‘Underweight’ rating, the stock is a consensus Overweight, underlining the potential for further gains for Macquarie investors.