Is Lloyds’ share price a buy in 2020?

Lloyds’ [LLOY] share price had a mixed 2019. Brexit weighed on the stock and PPI hit earnings. But with 2020 now underway, is it time to get behind the UK’s most traded stock? The Telegraph thinks so. Under the headline 'Back Lloyds...' the paper argues that Lloyds’ bellwether status means its share price could piggyback on a resurgent UK economy.

Yet on the surface, Lloyds still has to contend with sustained Brexit uncertainty. After all, a deal with the EU is still a long way off, and negotiations are unlikely to be smooth sailing. So is it really time to back the Lloyds share price?

How Lloyds’ share price has performed recently

So far this year, Lloyds’ share price has dipped over 7%. Admittedly, 2020 is only a couple of weeks old, and traders shouldn't read too much into this. But what is true is that following the 12 December general election, Lloyds’ share price jumped 12.61%. The Tory victory brought some confidence in the idea that a Brexit resolution could be in sight.

Yet, those hopes have since cooled as what's involved in actually ‘getting Brexit done’ becomes clearer, with the stock retreating 8.7% since 13 December.

The bulls on Lloyds’ share price

In 2019, it's no secret that Brexit weighed on the UK economy. Growth was sluggish and international investors shied away from FTSE 100 stocks. 

Yet this depressed economic performance could mean a resurgence is on the cards in 2020.  Lloyds, which is more exposed to the UK economy than the other major banks, could reap the rewards. At least that's according to Tim Wallace in The Telegraph, who has picked Lloyds as his stock to watch in 2020.

Wallace also points out that Lloyds doesn't have to contend with ongoing PPI claims. Last quarter, PPI payouts wiped out the bank's profits. Now that the deadline has passed, this will be one less thing to drag on earnings.

The bears on Lloyds’ share price

As recently as October, Lloyds CEO Antonio Horta-Osorio was bemoaning the “continued uncertainty” in the UK economy.  This would invariably “further impact [Lloyds’] outlook”.

While the UK is due to leave the EU on 31 January, that’s when the real work on departing the trading bloc will begin. From that point, the UK government enters a 12-month transitory period. During this time they are able to negotiate trade deals with other nations.

News on the government' s progress on these negotiations will affect Lloyds’ share price. While anything positive will help the stock, anything negative will trigger a drop.

Even with a trade deal, it could be some time before domestic demand returns to pre-Brexit levels. GDP growth has been sluggish, while the pound remains weak. It seems unlikely that customers will start taking out loans and mortgages the moment Brexit actually comes to fruition. What’s more likely is that they will see how things pan out, meaning growth will continue to remain somewhat sluggish.

Lloyds share price vitals, Yahoo Finance, 14 January 2020

What the analysts think

Lloyds carries a 75.37p average 12-month price target. Hitting this would represent a hefty 28.3% upside on the current share price.

Yet, there are some big names that advocate selling Lloyds stock. At the end of last year, Goldman Sachs reaffirmed its ‘sell’ position on Lloyds with a 56p price target. HSBC has a similar price target, coming in at 55p and have issued the stock with a ‘hold’ rating.

However, Lloyds does trade at a discount compared to other UK banks. A 10.18x price-to-earnings multiple (TTM) is lower than both Barclays' 83.97x and RBS's 36.51x.

For income-seeking investors, Lloyds’ dividend outperforms its rivals too, with a forward 3.34% yield. That's higher than both Barclays' 3.06% and RBS's 1.53%.

Optimistic investors will be pinning their hopes on less Brexit turbulence in 2020. As Tim Wallace puts it, without this burden an "unencumbered Lloyds could at last live up to its potential."