Is It Still Safe to Buy Lloyds Banking?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.

So right now I'm analyzing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy.

Today I'm looking at Lloyds Banking  (LSE: LLOY  ) (NYSE: LYG  ) to determine whether the shares are still safe to buy at 61 pence.

So, how's business going?
Recently, investors have been drawn to Lloyds amid speculation that the government could be close to selling its share of the bailed-out bank.

Indeed, it appears the bank no longer requires government support and is on track to return to profit soon. In particular, Lloyds recently reported that its underlying profit before tax was £1.5 billion for the first quarter of this year, up 300% on the same period last year.

Having said that, some City analysts are concerned that the bank could be faced with another mis-selling scandal, as regulators investigate the possibility that interest-only mortgages could have been mis-sold to customers. As Lloyds was at one point the country's largest mortgage provider, the outcome of this investigation could hinder the banks return to profitability.

Expected growth
Despite worries about additional claims from another mis-selling scandal, many City analysts expect Lloyds to return to profitability this year. City forecasts currently predict earnings of 2.7 pence per share for this year and 3.1 pence for 2014.

Shareholder returns
Before the financial crisis, Lloyds was well known for its dividend payout, which peaked at 36 pence a share during 2007.

However, since its bailout Lloyds has not offered a dividend payout but many City analysts expect the bank to start offering a token dividend of 1 pence per share during 2014.

Unfortunately, Lloyds made an adjusted loss of 2 pence per share during 2012, which means it is not possible for me to calculate the company's trailing P/E ratio.

Having said that, based on City estimates for the banks' earnings, I calculate that Lloyds is trading at a forward P/E multiple of 22.9, above that of its peers in the bank sector, which are currently trading at an average P/E of 18.8.

Foolish summary
Barring any unforeseen setbacks, Lloyds is on track to return to profit this year. That said, there is still plenty of speculation about the bank's future and the company's share price has already gained 28% so far this year, which is 19% more than the FTSE 100 as a whole, making the company look slightly "overbought."

So overall, I feel that Lloyds Banking does not look safe to buy at 61 pence.

More FTSE opportunities
Although I feel that it is not safe to buy Lloyds Banking, I am more positive on the five FTSE shares highlighted within this this exclusive wealth report.

Indeed, all five opportunities offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as "5 Shares You Can Retire On"!

Just click here for the report -- it's free.

In the meantime, please stay tuned for my next FTSE 100 verdict.

Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 10, 2013, at 8:13 PM, MichaelHamilton wrote:

    The true value of Lloyds will come to light in the next 5 years. It will be much higher than it is now, especially since HBOS was absorbed in 2008

  • Report this Comment On June 11, 2013, at 7:06 AM, cairey01 wrote:

    It depends on Lloyds quarterly profits. Antonio has already said that Lloyds look to be a high dividend payer at some point in the future, which he must see high profits coming. Keep an eye on each quarter. It could be one of those shares that gradually increase.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2480043, ~/Articles/ArticleHandler.aspx, 9/26/2016 4:44:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 12:09 PM
LLOY $54.25 Down -1.73 -3.09%
Lloyds Banking Gro… CAPS Rating: No stars
LYG $2.88 Down -0.07 -2.37%
Lloyds TSB Group CAPS Rating: ***