On Thursday, BofA Securities adjusted its stance on shares of Lloyds (LON:LLOY) TSB Group (NYSE: LYG), raising the rating from Neutral to Buy. The financial institution's stock also received a new price target, set at $3.05, an increase from the previous $2.62.
The upgrade comes after a period of uncertainty regarding motor finance, which the bank has addressed in its actions in the last quarter of the previous year. Despite incorporating motor finance costs totaling £2 billion, which reduced the estimated earnings for 2024 and 2025 by 11%, the bank's return on tangible equity (RoTE) and yield remain in the mid-teens. Additionally, the bank is believed to have the capacity to handle a £3.6 billion worst-case motor finance scenario without affecting capital distributions.
The financial analyst from BofA Securities stated that with the adjustments made for motor finance remediation, Lloyds TSB Group's price-to-earnings (PE) ratio is now below the European Bank sector average. This valuation, coupled with the reduced risk associated with motor finance, has led to the decision to upgrade the stock's rating.
The new price target of $3.05 is said to be more aligned with the middle range of the bank's fundamental and PE relative valuations. This adjustment reflects the reduced risk from motor finance issues that had previously led to the downgrade of the bank's stock.
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