Is It Still Safe to Buy Lloyds Banking?

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 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.

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

The article Is It Still Safe to Buy Lloyds Banking? originally appeared on

Rupert does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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