Are NAB shares a buy following its results?

Goldman Sachs has given its verdict on NAB's shares this morning.

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National Australia Bank Ltd (ASX: NAB) shares are ending the week in the red.

In afternoon trade, the banking giant's shares are down 2% to $28.35.

Should you buy NAB shares?

The team at Goldman Sachs thinks investors should be picking up the bank's shares while they are down.

This morning, the broker has retained its buy rating on the company's shares with a price target of $30.52. This implies a potential upside of almost 8% for investors over the next 12 months.

In addition, the broker is forecasting fully franked dividends per share of $1.62 in FY 2024 (and FY 2025 and FY 2026).

Based on the current NAB share price, this equates to a 5.7% dividend yield, which boosts the total potential return to approximately 13.5%.

Why is it bullish?

Goldman thinks NAB shares are a good option due to their attractive valuation and the bank's exposure to business banking. It explains:

Our Buy rating on NAB is predicated on: i) while lending competition is intense, it has been skewed more heavily towards housing as opposed to business, which should benefit NAB's relative earnings mix, ii) NAB has delivered the highest levels of productivity over the last three years and its investments continue to yield benefits (A$400 mn of productivity expected in FY24E), which we think leaves it well positioned for an environment of elevated inflationary pressure, iii) despite being overweight SME lending which is inherently riskier than housing, NAB remains well provisioned (CP/RWA ratio above peer levels) and asset quality remains strong, in particular with higher arrears not flowing into impairments, which management attributed to the quality of its book and its security, and v) valuations remain attractive, with NAB's P/PPOP at a 10% discount to peers.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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