Do Lloyds shares still have legs to run?
Nonetheless, given that the Lloyds share price has lost 20% of its value since February, it wouldn’t be farfetched to notice that the shares are now entering ‘bargain’ territory. This could present a buying opportunity for medium-to-long-term as well as dividend investors.
While the possibility of higher mortgage rates may trigger higher defaults and impact Lloyds’ bottom line, impairments in the medium term are unlikely to tick up meaningfully. CFO William Chalmers mentioned in the firm’s Q1 earnings call that the refinancing wave is set to peak in H2. Plus, it’s safe to say that Lloyds’ customers should be more resilient to rate rises due to their more affluent background given the group’s average LTV of 42%.
The current Lloyds share price also offers a lucrative buying opportunity for dividend investors. The group’s trailing dividends are well covered at 3.0x, which shows that even a downturn could see the FTSE 100 stalwart maintain its attractive dividend yield. And with an even more lucrative forward dividend yield of 6.5%, Lloyds shares are certainly worth considering for passive income.
Either way, I still downgraded my price target for Lloyds shares from 63p to 55p to be more conservative and reflect the potential downside of a weakening economy. But despite accounting for a much worse economic scenario, my price target for the stock remains above the current Lloyds share price. It’s also worth noting that even in the event of a windfall tax (assuming Lloyds matches consensus profit estimates), Lloyds shares would still have a fair value of 49p.
Even so, downside risks still persist and the lender’s fate will be at the discretion of the UK economy. A windfall tax and/or much higher terminal rate than what the market is currently pricing in could end up undermining the ‘Buy’ case for Lloyds shares. But discounting that, I believe Lloyds shares are now in oversold territory and may present a buying opportunity for long-term investors seeking a combination of growth and passive income.
Find out: How I achieved my price target for Lloyds shares on my Lloyds share tip.
