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Some of the world’s largest investment banks have lowered their price targets Lloyds Banking Group (LSE: LLOY) shares. These include Goldman Sachs And Citi Group.
There are reasons why sentiment among analysts has become more pessimistic lately. But I think the time to buy stocks is when other investors don’t want to – So should I look to Lloyds for my portfolio?
Goldman: Car Loan Uncertainty
Goldman Sachs has cut its price target from 64p to 63p. The central reason for this is uncertainty about the ultimate outcome of the ongoing investigation into car loans.
Last year, Lloyds set aside £450 million to cover potential liabilities. And while the case is still pending in the UK Supreme Court, the possibility of this being extended to other loans increases the risk.
As a result, Goldman’s analysts have lowered their price target to account for the unpredictability. But with the shares still trading below 55p, as I write this it is still well below the revised estimate.
However, it’s worth noting that car lending isn’t the only potential challenge for Lloyds at the moment. There is also the opportunity to consider lower interest rates as 2025 approaches.
Citigroup: domestic risks
At the start of the year, Citigroup analysts had a buy rating on Lloyds shares (despite the car loan risk). Now, however, they are much less positive, with a price target of 56 cents.
As the new year approaches, HSBC is preferred by Citi British bank. And that’s mainly because it has less of a UK focus than Lloyds, which is currently facing a challenging economic environment.
House prices have risen through 2024. And while they are still not at their 2022 peak, this will likely weigh on mortgage demand.
Lowering interest rates by the Bank of England could solve this problem. But this will likely replace one issue with another, as lower interest rates typically cause credit margins to shrink.
Time to be greedy?
Importantly, Lloyds still has its competitive advantage intact. The bank has the largest market share of UK retail deposits, giving it a cost advantage when it comes to financing its loans.
From a long-term perspective, this potential is the most important. And that raises the question of whether I should buy the shares now.
I view the potential liability for auto loans as much more important than the macroeconomic issue. That’s because — as Goldman’s analysts note — it’s nearly impossible to estimate accurately.
But the lower the Lloyds share price, the more this risk is compensated. And in the long term, I think the structural advantage that Lloyds has is still much more important than the short-term risks it faces.
Why I don’t buy
While I don’t disagree that Goldman has a price target well above the stock’s current level, I don’t plan to buy it. The reason is relatively simple: there are other options that I like even more.
I want to concentrate on this for my own portfolio. But I’ll be keeping an eye on the Lloyds share price as things progress, and I wouldn’t rule out the share reaching a level that I think is too cheap to ignore.