LLoyds share price forms risky pattern ahead of earnings

Lloyds share price remained in a tight range this week, but this may change as the company publishes its financial results. LLOY was trading at 83.35p, a few points below the year-to-date high of 86.68p. It remains much higher than the year-to-date low of 49.85p.

Lloyds Bank earnings preview

The UK bank earnings season starts today as Barclays publishes its quarterly results. It will be followed by Lloyds Bank on Thursday, NatWest on Friday, and HSBC and Standard Chartered next week.

Lloyds Bank earnings comes at a time when its stock has stalled as some investors start to book profits after a multi-year rally that has pushed it from a low of 21.45p in 2020 to a high of 86.68p this year.

The stock has also stalled as investors react to the happenings in the UK, which is going through a triple whammy. Inflation remains at an elevated level, the economy is slowing, and taxes are rising.

Lloyds and other banks are also at risk of the growing UK government budget deficit, which may push Rachel Reeves to implement a windfall tax on the banking sector.

It is against this backdrop that Lloyds Bank publishes its financial results on Thursday. Analysts expect the company’s results to show that the company continued its growth during the quarter. They also see the bank’s revenue growth accelerating in the coming years.

The average estimate is that its net interest income (NII) rose to £3.4 billion from £3.36 billion last quarter. Its other income is also expected to grow modestly to £1.53 billion.

However, the net profit is expected to slump from £1.41 billion in the second quarter to £726 million in Q3. This slump will be because of a big increase in impairment charges and remediation, possibly because of the motor insurance issue.

Is Lloyds Bank a good investment?

Lloyds Bank has been a good investment in the past few years. It has jumped from around 20p during the pandemic to 83.35p today. On top of this, the company has been a good dividend payer, with its yield nearing 4%.

Analysts also expect the company’s revenue and profits to continue rising in the coming years. Its NII is expected to move from £12.84 billion in 2024 to £13.6 billion, £14.93 billion, and £15.9 billion in 2025, 2026, and 2027.

Therefore, there are chances that the company will continue doing well since it mostly beats its estimates.

While Lloyds stock has solid fundamentals, technicals are showing a red flag. The weekly chart shows that the stock has continued rising in the past few months. However, it has formed a rising wedge pattern, which is made up of two ascending and converging trendlines.

The two lines of this pattern are nearing their confluence, which is where most reversals happen. At the same time, the MACD and the Relative Strength Index (RSI) have formed a bearish divergence pattern.

Therefore, the most likely scenario is where the stock pulls back in the near term and then resumes the uptrend.