Will Lloyds Banking Stock Continue to Rise?  (Is the stock a Buy, Sell or Hold in 2013?)

The stock of Lloyds Banking Group continues to rise as the company executes a comprehensive restructuring effort. Despite the continuous issues facing the bank, (ill-fated merger of HBOS and Lloyds, European crisis, PPI mis-selling, etc.), investors continue to bid up the stock price.

Lloyds Banking Group is traded on the New York Stock Exchange under the ticker LYG and on the London Stock Exchange under the ticker LLOY.

Lloyds Banking Group PLC (LLOY.L) Stock Chart

From September 2012 to February 2013, the stock prices for both LLOY and LYG have risen by more than 59%. On Wednesday, Jan 23, 2013 Lloyds Banking Group provided an update on its restructuring efforts by announcing an additional 940 job cuts, bringing total job cuts to 31,000 since 2009.

As reported by Reuters UK, "Lloyds said the jobs would be lost in its operations, insurance, retail, wealth, international and commercial divisions and were part of the reductions previously announced in its strategic review. The part-nationalised bank said in June 2011 that it planned to save 1.5 billion pounds ($2.4 billion) by letting 15,000 staff go."

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Taking Lloyds Banking’s shaky prospects and also the firm’s restructuring efforts to turn itself around, investors are asking: Is Lloyds Banking Group stock a buy, sell or hold in 2013?

Let’s assess the facts and try to address those questions.

Lloyds Banking Group Analysis Breakdown (LLOY: LSE | LYG: NYSE)

  1. Fundamental Analysis
  2. Analyst Recommendation
  3. Growth Expectations
  4. Bottom Line Conclusion
  1. Fundamental Analysis

On January 19, 2009, Lloyds Banking Group was formed following the acquisition of HBOS plc by Lloyds TSB Group. Unfortunately for the group, the acquisition brought 10B pounds of highly toxic assets to the balance sheet of the combined group. This led to Lloyds Banking Group becoming nationalized by the government and UK tax payers ended up owning 40% of the bank.

Lloyds management, however, believe the acquisition will eventually pay off and stated that: "while the short term outlook for all financial services companies in the UK and around the globe is challenging, we believe that the acquisition of HBOS will be a success and presents us with many opportunities.”

Lloyds’ latest earnings report (as of Q3 2012) shows a decline in net interest income for the nine months ending Sept 20, 2012. However, due to a reduction in impairment charges, the company’s “underlying profit” was1.9B pounds (versus 768M earned last year).

After subtracting costs and other expenses from underlying profit, the firm was left with a loss of -1B pounds for the period. This loss, however, was almost three times less than the -2.7B loss generated in 2011.

The 63.9% reduction in losses is giving investors hope that in 2013 the firm could possibly report a positive net income instead of another loss. This expectation combined with the firm’s restructuring and cost reduction successes have been the major drivers in the rise of the company’s stock price.

Lloyds Income Statement

  1. Analyst Recommendation

From a scale of 1 (Strong Buy) to a 5 (Sell), stock analysts have rated the firm a 2.6 (Buy). The average price target on the stock is 51.18 pence. The minimum price target was 24 pence, while the highest price target was 66 pence. The stock currently trades around 55 pence a share.

Lloyds analyst recommendation
Source: Yahoo! Finance UK

  1. Growth Expectations

March 1, 2013 is the next earnings date for the group, and investors are estimating a negative -49.40% growth for this year. However, looking forward the general market consensus is for a 53.90% surge in the company’s growth starting next year.

(Read More: Blackberry (BBRY) Stock Rises 138% in 6 Months – Is BBRY a Good Buy or Sell in 2013?)

Growth expectation is a major factor that drives a stock’s current market price. When investors are forecasting strong growth for a particular company, they normally take this into consideration and adjust their valuation models accordingly – bidding up a company’s existing stock price in the process

Lloyds - Growth Estimates
UK Finance Yahoo

  1. Bottom Line Conclusion

Taking the various fundamental, valuation and restructuring efforts into consideration, we believe Lloyds Banking Group has strong potential to turn itself around, an event that will support a continual increase in the stock price. We however believe that it is best to wait for a pullback in the stock before increasing your holdings of the company’s shares. The stock has experienced a strong 6 months rise and is bound for some consolidation (decline) in the near future.

Good luck in your investing. Let us know if you have any questions, comments or feedback,

MarketConsensus Stock Analysis Team

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