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3 Ways Lloyds Banking Group PLC Will Continue To Lag Its Sector

Right now I’m comparing some of the most popular companies in the FTSE 100 with their sector peers in an attempt to establish which one is the more attractive investment.

Today I’m looking at Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US).

Valuation

Now, I believe that as Lloyds’ largest peers, Standard Chartered and HSBC generate the majority of their income outside of the UK, they are not a suitable comparison.  So, for the purpose of this article I will be comparing Lloyds to its closest high-street banking peers, Royal Bank of Scotland and Barclays.

Unfortunately, as both Lloyds and RBS reported a full-year loss for 2012 I am unable to calculate a historic valuation for both companies. However, City analysts expect Lloyds to earn 5.3p per share for 2013, indicating that the company currently trades at a forward P/E 14.2.

This means that Lloyds is trading at a slight discount to the wider banking sector, which is currently trading at a historic P/E of 16.4. Meanwhile, Barclays trades at a forward P/E of 10.5.

So overall, Lloyds looks relatively expensive compared to its closet profitable peer but cheap compared to the wider sector. 

Company’s performance

Nonetheless, Lloyds’ earnings are expected to grow rapidly during the next two years as the company finally recovers from the financial crisis.

Indeed, City analysts expect Lloyds to earn 6.8p per share during 2014, which implies earnings growth of 30% from the 5.3p per share profit the bank is set to report for full-year 2013. Actually, this rapid earnings growth puts Lloyds on a PEG ratio of around 0.5, indicating that the bank offers growth at a reasonable price.   

In comparison, peer RBS is not expected to report a profit for this year. Furthermore, Barclays’ earnings per share are expected to decline 25% this year, although this is mostly due to rights issue the company undertook earlier in the year. 

Dividends

Many City analysts expect Lloyds to introduce a token dividend of 0.6p per share at the end of 2013. That said, the City also expects this payout to expand 270% during 2014 to hit 2.2p per share, a dividend yield of 3% at current levels.

Unfortunately, close peer RBS is not expected to offer a dividend again until 2014, City analysts project this will only be a token payout of 1.3p per share, a yield of 0.4% at current prices.  However, Barclays is expected to offer a payout of 10.6p per share during 2014, indicating that the bank will offer investors a prospective dividend yield of 4.2% based on current prices.

Foolish summary

So overall, based on City estimates for Lloyds’ rapid earnings growth during the next two years and the prospective dividend yield of 3%, I feel that Lloyds is a much stronger share than its peers. 

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Indeed, all five opportunities offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as "5 Shares You Can Retire On"!

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> Rupert owns shares in Lloyds Banking Group. The Motley Fool owns shares in Standard Chartered.