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Could the Lloyds share price surge this week?

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

Banking group Lloyds (LSE: LLOY) has been rewarding to shareholders lately. The Lloyds share price has surged 69% over the past year, at the time of writing this today. But I think they could rally further after an event later this week. They may even surge. Here’s why.

Lloyds trading update due

On Thursday morning, the company is due to release its third-quarter interim management statement. That should include information that helps investors assess how the business has been performing lately. For example, the bank’s management will likely share information such as revenue trends, trading conditions, and the company’s outlook for future performance.

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It was only last month that Lloyds issued its results for the first half of the year. So it may seem unlikely that it has much to add to that which could be significant. But actually I think the third-quarter trading statement could impact the shares.

Reasons to be bullish

First, I reckon the Lloyds share price hasn’t fully factored in the good news contained in the first-half results. For example, in those six months, the company reported earnings per share of 5.1p. Remember that that was only for a half-year period. Even so, those earnings already equate to over one-tenth of the Lloyds share price. Bank results can vary significantly over the course of the year. But if the company’s second-half performance is similar to what it reported in the first six months, that would put its share on a price-to-earnings ratio in the mid-single digits. For a leading UK bank, that seems cheap to me.

Secondly, some of Lloyds’ peers have already announced strong third-quarter performance. HSBC, for example, more than doubled post-tax profit to $4.2bn. HSBC has a more global footprint than Lloyds, but notably HSBC UK increased its pre-tax profit by 50%. If Lloyds announces performance anything like as good on Thursday, I think that could provide a strong boost to the Lloyds share price.

Additionally, any update on the bank’s thinking about dividends and how to deploy its excess capital could cheer investors. I don’t necessarily expect this – it seems better suited to the full-year results than a quarterly trading update. But investors will be poring over the statement for clues about whether the bank’s dividend could be boosted in the foreseeable future.

Lloyds share price risks

The strong performance in the Lloyds share price over the past year suggests that high expectations are already factored in. So, while I am hoping for a bounce in the Lloyds share price this Thursday, there is a risk that any weaker than expected news could lead it to fall.

I see the bank’s expansion into being a landlord as a potentially costly diversion that could ultimately hurt profits as well as distract management. The prospect of more pandemic restrictions over the coming months could also dampen consumer spending, which might hurt Lloyds’ profits.

Either way, I expect that Thursday’s update could impact the Lloyds share price if it contains significant news.

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Christopher Ruane owns shares in Lloyds Banking Group. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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