It’s almost a year since the Lloyds Banking Group (LSE:LLOY) share price was at 50p. Since the banking crisis in 2023, the stock has been moving lower – below 45p for a lot of that time.
Predicting short-term movements in the stock market is always a risky business. But I think it’s highly plausible that things could be about to look up for Lloyds shareholders.
Results
Lloyds is set to announce its full-year earnings for 2023 in a couple of weeks. And I think there are a couple of reasons this could be a positive catalyst for the stock.
One is that I’m expecting a decent report. With interest rates high, I’m expecting strong profitability from the bank, despite the risk of loan defaults.
Even if I’m wrong, though, there’s another reason to be positive. Analysts are expecting significant share buybacks from Lloyds over the next couple of years.
The current consensus is for £1.8bn in repurchases in each of the next two years. At today’s prices, that’s around 6.5% of the outstanding shares per year.
Adding that to a dividend with a current yield of 6% makes the stock look quite compelling at today’s prices. But that’s why I don’t think things will stay that way for long.
Long-term investing
I can see a lot of potential for the Lloyds share price this month. But from an investment perspective, I think it’s much more important to focus on the long term.
There are a couple of things to think about here. One is what profitability will look like across the banking sector and the other is the position Lloyds will have within that industry.
I think interest rates over the long term are likely to be lower than they are now, meaning profitability will likely be lower. But at today’s prices, I’d suggest the market is factoring that in.
Lloyds currently has the largest share of retail deposits. But whether it can maintain that is another matter – Warren Buffett pointed out last year that switching costs in banking are now very low.
This is true, but it’s been the case for some time and it doesn’t seem to have affected the company in a meaningful way yet. Whether that will change in the future is harder to predict.
A buying opportunity?
I think there might be an opportunity here for investors. US banks, such as Bank of America and Citigroup have seen their share prices recover pretty well since last year’s crisis.
By contrast, Lloyds shares remain closer to 40p than 50p. But the company’s earnings report later this month might help to get things moving again.
Analysts seem to think there’s a strong chance of significant share buybacks and I don’t think this is currently being reflected in the price. I’m looking at the stock as a potential buying opportunity.
The post Why a £1.8bn share buyback could send the Lloyds share price higher this month appeared first on The Motley Fool UK.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in Bank of America and Citigroup. The Motley Fool UK has recommended 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.
