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How Lloyds Banking Group PLC (ADR) (LYG) Measures Up As a GARP Investment

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LONDON — A popular way to dig out reasonably priced stocks with robust growth potential is through the “Growth At A Reasonable Price,” or GARP, strategy. This theory uses the price-to-earnings to growth (PEG) ratio to show how a share’s price weighs up in relation to its near-term growth prospects — a reading below 1 is generally considered decent value for money.

Today I am looking at Lloyds Banking Group PLC (ADR) (NYSE:LYG) to see how it measures up.

What are Lloyds Banking Group’s earnings expected to do?

2013 2014
EPS Growth n/a 32%
P/E Ratio 13.9 10.5
PEG Ratio n/a 0.3

Source: Digital Look.

City analysts expect Lloyds Banking Group PLC (ADR) (NYSE:LYG)
to rebound in the current year from losses per share of 2 pence in 2012, with earnings per share (EPS) of 4.5 pence pencilled in for 2013. This is then expected to advance to 5.9 pence next year.

Lloyds Banking Group PLC (ADR) (NYSE:LYG)

Mathematical problems do not provide 2013’s projected turnaround with valid EPS growth or PEG ratings, although next year’s EPS turnaround illustrates the decent growth potential on offer. Still, next year’s PEG multiple comes in below the marker of 1, which represents good value.

And although Lloyds Banking Group PLC (ADR) (NYSE:LYG) comes in comfortably above a price-to-earnings (P/E) ratio reading of 10 for this year — a reading under this level is usually classified as exceptional value for money — it is anticipated to fall much closer to the benchmark in 2014.

Does Lloyds Banking Group provide decent value against its rivals?

FTSE 100 Banks
Prospective P/E Ratio 14.8 41.3
Prospective PEG Ratio 4.5 0.9

Source: Digital Look.

Unlike Lloyds Banking Group PLC (ADR) (NYSE:LYG), the FTSE 100 and banking sectors both produce valid PEG ratings for the current year. Still, Lloyds’ superior forward P/E rating shows the decent value on offer compared with its counterparts.

After a prolonged slog and severe transformation measures, I believe that Lloyds Banking Group PLC (ADR) (NYSE:LYG) has emerged from the 2008-2009 financial crisis and subsequent government bailout in excellent shape. And I expect a more streamlined company to punch strong revenues and earnings growth moving forwards.

Customisable conclusion
A huge reduction in impairment charges, combined with massive cost-cutting measures and asset sales, have led to a vast improvement in the part-nationalized bank’s financial performance in recent times. Indeed, Lloyds Banking Group PLC (ADR) (NYSE:LYG) announced in April that pre-tax profit had leapt to £2 billion in the first quarter versus £280 million in the same period last year.

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