The Lloyds Bank (LSE: LLOY) share price closed yesterday just shy of 50p. In early trading today, it breached that level. If it closes above it, this would be the highest it has reached in a year! This latest increase was brought on by the bank’s third-quarter results, which were ahead of expectations. Based on these and broader trends, I believe that there are three reasons that the Lloyds share price could skyrocket in 2022.
#1. Improved financials
The pandemic has receded significantly and economic conditions are looking better. A healthier economy is mirrored in company performances as well. So it is no surprise that Lloyds Bank’s net profits jumped by almost eight times for the nine months ending 30 September compared to the same time last year.
The bank now shows a small impairment credit this year instead of the massive impairment charge seen last year, significantly improving its profits. Improved macroeconomic conditions have helped Lloyds Bank improve its results, it has said. This jump in profits is no doubt a one-time phenomenon. But as long as the bank continues to improve its financials, I reckon its share price could stay elevated too.
#2. Higher dividends possible
In my assessment, its high dividend yields were a big reason that Lloyds was relatively more attractive before the pandemic. Just before the Covid-related problems started in March last year, its yield was at 10%+. But once the lockdowns began, all banks were asked by the authorities to stop paying dividends. They were later allowed, but only to a limited extent. As a result, at present the Lloyds dividend yield is at a much smaller 2.5%. This is below even the FTSE 100 average yield of 3.4%.
These restrictions are supposed to be temporary. So I reckon that it is only a matter of time before the bank’s dividends could rise again. And this in turn could push up its share price, which has been languishing below pre-pandemic levels for a while now.
#3. Undervalued stock
Lloyds stock is also undervalued compared to the average FTSE 100 stock. For 2021, my estimates based on the latest data indicate that its price-to-earnings (P/E) ratio is at an abysmal 5.2 times. That on average a FTSE 100 stock trades at almost 20 times puts this into perspective. With its improving prospects, I reckon it will now look more attractive to investors like me.
How much can the Lloyds Bank share price rise?
In an article I wrote on the stock earlier in the month, I had estimated that the share price could rise to 120p over the near future. After its latest results, I am hopeful that it could rise even more.
Of course it is always possible that coronavirus cases rise again in the winter. The economic recovery may still be hurt by rising inflation and the withdrawal of fiscal stimulus. And all of this could result in a slump in stock markets.
But if things were to continue going well, the Lloyds Bank share price could just skyrocket in 2022, in my view. I have been on the fence about it for a long time, but now the FTSE 100 stock is a buy for me.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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