The Lloyds Banking Group (LSE:LLOY) share price has been stuck below 50p since the banking crisis earlier this year. But 19 analysts have an average price target for the stock of 60p.
That might not sound like a lot, but it’s a 43% gain from its current levels. But how likely is it that Lloyds shares will reach this level in the near future?
Why is the stock falling?
Since the start of the year, the bank’s share price has fallen by around 11%. That’s not a good result, though it’s not bad compared to Barclays (-18%) and NatWest (-26%).
In general, 2023 has been a difficult year for the banking sector in the UK. But not many of the challenges Lloyds is facing are to do with the company specifically.
Recently, rising interest rates have gone from being a source of support to a problem. With interest rates on savings rising faster than loan interest, banks across the board have found their margins narrowing.
On top of that, rates have now reached a level where loans are starting to become unaffordable for borrowers. As a result, loan losses are on the rise.
All of this is weighing on the Lloyds share price at the moment. But analysts think the market is significantly overestimating the difficulties facing the bank at the moment.
When will the stock recover?
The fact that the stock is being weighed down by factors beyond the company’s control makes predicting when it will reach the targets analysts have set a tricky business. I think there’s good reason to be positive about the stock in general, though.
With interest rates set to remain steady, there might be some relief from the pressure on margins and rising loan losses. If the UK enters a recession, though, the Lloyds share price could stay at its current levels for some time.
I wouldn’t buy the stock at today’s prices based on the idea that it might reach 60p in the near future. But I do think there’s a decent case for buying it based on the company’s earnings.
Right now, Lloyds is in the middle of a sizeable share buyback programme. I’m expecting this to provide a significant boost to the company’s earnings per share going forward.
The good news for investors is that the lower the share price, the more shares it can repurchase. So even if the stock stays at its current levels for some time, the buyback programme gives shareholders reason for to be optimistic about future earnings.
Should I buy Lloyds shares?
Of all the UK banks, Lloyds would be my top stock to consider buying. The company has the largest share of retail deposits and I think this should give it a competitive advantage over time.
Every company goes through cyclical ups and downs and banks are especially prone to this. I’ve been quietly impressed, though, at the firm’s ability to navigate the challenges without creating any extra difficulties through mistakes of its own.
Predicting whether or not the Lloyds share price is going to hit 60p in the near future looks risky to me. But I’m considering buying the stock based on the company’s earnings.
