What does the latest analysts’ take on the Lloyds share price mean for investors?

City brokers have been bullish about the Lloyds Banking Group share price for the past few years. But that might be changing.

| More on:
Man putting his card into an ATM machine while his son sits in a stroller beside him.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the past year or so I’ve become accustomed to seeing bullish broker forecasts for the Lloyds Banking Group (LSE: LLOY) share price.

But looking at the latest January summary from the London Stock Exchange Group, I’m surprise to see the consensus downgraded to Neutral. Just three months ago we had a solid Buy consenus.

And of five analysts out of 17 who had the stock as a strong Buy three months ago, only two of them still rate Lloyds so highly. What should private investors make of this?

Mixed reaction

Firstly, I think we need to sit back a bit and take this kind of stuff in our stride. After all, contrarians are always looking for the ones the City folk get wrong, right?

Short-term uncertainty weighs on the professionals. And it’s the kind of uncertainty that long-term Foolish investors are better able to overlook. But at the same time, I’d never ignore what the City is saying about any stocks I’m interested in. It’s very much a part of my strategy to consider all opinions before I make up my own mind.

A number of recent events have changed the short-term landscape for Lloyds. Not the least of which is the share price, which has risen 48% in the past 12 months, though not close to the doubling achieved by Barclays. Maybe Lloyds was a screaming buy a year ago, but the shouting seems quieter now.

The consensus price target at the moment is still only around 65p. That’s just a few pennies above the current price, so that alone might be all that lies behind the softening stance.

Threats

Lloyds has been in the news recently for what many might see as a disturbing reason. It’s planning to close another 136 branches. That’s about 10% of the UK total, and it makes the term ‘high street bank’ seem increasingly historical.

It’s not such bad news for shareholders though, as it’s really just part of the growing shift from cash to digital transactions. If anything, it should cut costs and hopefully help maintain profit margins. It doesn’t make the stock any less attractive for me.

The ongoing car loan mis-selling investigation is more worrying. The recent intervention from Chancellor Rachel Reeves has settled my nerves a bit, however. She’s urged the Supreme Court that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall“.

That could help ease fears that Lloyds could be hit for as much as £1.5bn.

Why buy?

We’re looking at a forecast price-to-earnings (P/E) ratio of 10, on the low side by FTSE 100 standards. But in the current economy, I think that might be about right. There’s a forward dividend yield of 4.6%, which I rate as decent for a bank. It’s not the best though, with HSBC Holdings on a predicted 5.8%.

But considering my optimistic view of the long-term outlook for banks and mortgage lenders, I’m holding my Lloyds shares. And I could see myself topping up in the future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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.

More on Investing Articles

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Would an investor have made money investing £2k in NIO stock 5 years ago?

Our writer looks at how NIO stock has performed over recent years and weighs the bull and bear cases as…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 steps to start buying shares with £5 a day

In a handful of steps, our writer explains how someone new to the stock market could start buying shares for…

Read more »