The Lloyds Banking Group (LSE: LLOY) share price has been one of the best performers in the FTSE 100 in the past year with its 32% gain.
The high street bank, the UK’s biggest mortgage lender, has just completed a milestone. On 14 November, Lloyds reported the completion of its £2bn share buyback programme. That should help future per-share measures.
It also means Lloyds saw buying at this year’s share prices as an effective way to return surplus cash to shareholders. I also think Lloyds is still worth buying even after this year’s gains. But what do the stock market analysts think?
Price targets
First, I want to sound a caution about the price targets that brokers and analysts set along with their forecasts. My biggest problem is that they don’t explain how they work out the numbers, so I have no way to check and see if I agree.
But they can be a start, and we can then use other data from forecasts to work out where we think a share price might go. After all, we’re our own experts, aren’t we?
There’s an average price target of 65p now, with a range from 53p to 80p. That’s fairly narrow compared to some. Roll-Royce Holdings, for example, has a target spread of 240p to 700p.
So maybe the City sees Lloyds as less prone to risk of share price volatility?
Fair valuation
Considering Lloyds shares trade near the bottom of the target range, at 56p, it makes me wonder about current recommendations. There’s a mild ‘buy’ consensus, but the majority of opinions have the stock as a ‘hold’.
I suspect forecasts for next year might lie behind that.
This year’s put Lloyds on a price-to-earnings (P/E) ratio of 8.5, which is too low in my books. And on 2026 estimates, that could drop to 6.4. A steal?
Well, there’s a thing called 2025 in the way, with earnings expected to fall. It could lift the P/E to above nine.
We’ve heard in the past few days that the UK economy has faltered in the last quarter. And Bank of England Governor Andrew Bailey has been talking about the negative economic impact of Brexit.
Not out yet
Those woods that we’ve been in, we’re not out of yet. I can see weakness for bank shares over the next 12 months, and the 2024 Lloyds rise might be all we can expect for now.
But that forecast P/E of 6.4 for 2026 would make me see the shares as just too cheap. I do, however, think earnings forecast for that year could be a bit optimistic considering the economic news.
What if I cut the 2026 forecast to 8p EPS (currently 8.6p). And I predict a fair P/E of, say, 10? That could see the Lloyds share price reaching about 80p by 2026. Or 64p if the P/E only gets to eight.
That’s in the upper range of analysts’ targets. But nobody should put any more faith in my estimates than theirs. Do your own research, folks.
The post Up 32% in 12 months, where do the experts think the Lloyds share price will go next? appeared first on The Motley Fool UK.
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Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Rolls-Royce Plc. 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.
