Lloyds (LON: LON:LLOY) share price has pulled back in the past few weeks as the focus shifts to the upcoming Bank of England (BoE) decision. After peaking at 57.36p in May, the stock has crashed by over 4% from its highest point this year.
Bank of England’s decision
Lloyds Bank and other British banks have retreated recently as investors wait for Thursday’s Bank of England decision.
Economists expect the bank to leave interest rates unchanged at 5.25% even after the encouraging UK inflation data. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) dropped from 2.3% in April to 2.0% in May.
Core inflation, on the other hand, dropped from 3.9% in April to 3.5% in May. Therefore, analysts expect that the bank will wait for the upcoming election before starting to cut interest rates.
Lloyds is also reacting to the upcoming election that will usher a new era in the UK economy after over a decade of conservatives in power. Some analysts believe that the election could expose the UK economy to a bond sell-off.
There are still reasons to invest in Lloyds Bank even as these risks remain. First, the bank has a dividend yield of 5.02%, which is higher than most companies in the FTSE 100 index. This means that a £100,000 investment will generate about £5,000 in annual dividend earnings.
Lloyds has been hiking dividends because of its strong earnings and its goal of reducing its capital reserves. It also has strong credit ratings with Standard & Poors, Moody’s, and Fitch’s long-term bonds having a rating of BBB+, A3, and A.
Second, the company is still highly undervalued. It has a price-to-book (P/B) ratio of 0.715, which is lower than Unicredit’s 0.825 and HSBC’s 0.82. The P/B ratio is also lower than other banks like JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS).
Third, Lloyds Bank has some positive outlook from analysts. Analysts at Deutsche Bank (ETR:DBKGn) believe that the company has more upside. The average Lloyds share price forecast by analysts is 60.7p, higher than the present 55p.
Lloyds share price analysis
LLOY chart by TradingView
The daily chart shows that the LLOY stock price has pulled back in the past few weeks. It has dropped from the year-to-date high of 57.36 to the current 55p. The stock has remained above the 23.6% Fibonacci Retracement point and the 50-day and 100-day moving averages.
Most importantly, the stock has formed a bullish flag pattern, a popular positive sign. The accumulation/distribution indicator has also drifted upwards. Therefore, the stock will likely have a bullish breakout as buyers target the year-to-date high 57.35p, which is about 4.1% above the current level.
This article first appeared on Invezz.com
