How Have The City’s Expectations Changed At Lloyds Banking Group PLC?

How might earnings at Lloyds Banking Group Plc (LON:LLOY) change in the future?

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A few months ago I reviewed what City analysts were expecting Lloyds (LSE: LLOY) (NYSE: LYG.US) to earn in the coming years.

Today I’m looking at the latest earnings per share (EPS) forecasts for the government-backed FTSE 100 bank, to see how those expectations have changed since June. All my figures are courtesy of S&P Capital IQ.

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It’s been a positive few months for Lloyds shareholders. The troubled bank continued to sell off its burdensome non-core assets, and even announced future plans to pay out 70% of its earnings in dividends. But did these actions boost the City’s expectations for Lloyds?

Analysts expected Lloyds to earn 5 pence per share this year, according to my article in June. Of the three most recently updated analyst targets for Lloyds’ EPS this year, the average estimate is 5.41p per share, an 8% improvement.

This means that by using those new estimates, compared to a recent share price of 72p, the market is now valuing Lloyds’ shares on a forward price-to-earnings multiple of 13.3.

In June, the consensus then called for an improvement in Lloyds’ earnings to 6p per share for 2014. Looking at the three latest forecasts, the average 2014 earnings estimate is 6.54p per share, 9% greater than previously expected.

It seems that the City is somewhat more optimistic about Lloyds’ near-term earnings than before. However, over that same short time period Lloyds’ share price has surged 18% higher, from 61p to 72p. So, have the positive developments over the summer already been priced into Lloyds’ shares, or is this just the start of the Lloyds turnaround story?

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> Mark does not own any share mentioned in this article.

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