As I own both stocks, I’d like to say that determining whether the Vodafone (LSE:VOD) or Lloyds (LSE:LLOY) share price offers the better value is similar to deciding which of your children you like best. Unfortunately, their lacklustre share price performance means I’ve come to hate them both.
Okay, ‘hate’ might be a little strong but I’ve become increasingly frustrated with their long-term underperformance relative to, for example, the FTSE 100.
However, I’m going to try and identify which one I think’s more of a bargain.
Asset-based valuation
Using the price-to-book (PTB) ratio, the telecoms giant appears to be the cheapest. At 31 March, Vodafone had a PTB ratio of 0.36, compared to 0.73 for Lloyds.
This means if all of the assets on Vodafone’s balance sheet were sold for their accounting value — and the proceeds used to repay its liabilities — there would be 192p a share left over to return to shareholders.
Profitability
The position is reversed when looking at profits. For the year ending 31 December (FY24), Lloyds is expected to record earnings per share (EPS) of 6.2p. This gives a current price-to-earnings (P/E) ratio of 9.35. For FY25 and FY26, the forward earnings multiple is 7.73 and 6.37 respectively.
Analysts are forecasting Vodafone’s EPS to be 6.85p for the year ending March 2025 (FY25). With a current share price of around 70p, this means the current year P/E ratio is 10.2.
EPS is expected to increase to 8.38 and 9.01p, in FY26 and FY27 respectively. This implies a forward P/E ratio range of 8.35-7.77.
Dividends
When it comes to dividend yield, there’s not much to choose between the two. Vodafone suffers from its recent 50% cut. An anticipated payout of 4.5 euro cents (3.81p) implies a yield of 5.4%. Although still impressive, it was in double digits a few months ago.
Lloyds is expected to return 3p a share in FY24 — 8.7% more than it did in FY23. This gives the banking stock a yield of 5.1%.
And the winner is …
These types of valuation measures are intended to facilitate the comparison of stocks across sectors. However, we’ve seen that Vodafone wins when it comes to its balance sheet, Lloyds is ahead using earnings and both offer similar dividend yields.
However, if I had to choose I’d pick Vodafone over Lloyds. The telecoms giant’s currently restructuring its operations which, once concluded, will see it emerge as a more streamlined group.
I think it will take a while before it grows again but it’s more of an international business. This means it’s less reliant on one market.
Although a turnaround isn’t guaranteed, I’m confident that its decision to sell its less profitable divisions is a good one.
By contrast, Lloyds is more focused on the UK economy. Although the domestic economy’s forecast to grow over the next couple of years, a recovery is far from certain. The public finances don’t appear to be in good shape which might restrict growth.
And its share price is only around 3.5% below its 52-week low. I therefore feel that Vodafone shares currently offer better value.
