It’s always important for investors to have their own personal view on a stock before deciding to purchase. Lloyds Banking Group (LSE:LLOY) remains one of the most popular FTSE 100 stocks for retail investors to trade.
Despite everyone having their own view of the firm, it’s very interesting to consider what some of the top bank analysts are forecasting. Here’s the current rundown.
Running through the numbers
From the current share price of 42p, the analysts put out their opinions and attach a share price forecast. This is usually a 12-month target price, but not all specify the timeframe.
At the top end, US banks Citi and Goldman Sachs have a target of 83p and 80p respectively. Barclays are at 70p, with HSBC at 53p. The lowest figure from a major bank comes from JP Morgan, with the current share price being the target.
The skew of forecasts is definitely in favour of a move higher over the coming year for Lloyds shares.
Why the picture looks rosy
Goldman Sachs flagged up that one of the main reasons for the potential outperformance comes from interest rates.
The steep rise in UK interest rates is of huge benefit to the bank, via higher net interest income. This happens when Lloyds makes a larger margin between the rate it pays on deposits versus what it charges on loans.
The analyst doesn’t believe the future uplift in profitability from higher rates is fully reflected in the current valuation, hence the share price target.
Not everyone agrees
On the other hand, JP Morgan analysts don’t see much room for the share price to go higher. It noted that the net interest margin for Lloyds and NatWest Group underwhelmed expectations. It’s also cautious on the room for net interest income to increase going forward.
It’s clear that the point everyone is focused on is the net interest income, stemming from interest rates in the UK. It’s a very subjective point, depending on what investors think the Bank of England will do over the coming year.
Is the economy going to weaken? This could force the central bank to avoid more hikes. Is inflation going to stay elevated for longer, making more interest rate increases necessary? There isn’t currently a clear answer.
The bottom line
It’s clear that most analysts think that Lloyds shares can perform well in the coming year. I agree with this sentiment. I struggle to see the stock reaching 80p, however this would be a remarkable outcome, given the level at which it currently trades.
Yet even if it doesn’t reach this high, it can still offer some good returns. Therefore, I think investors should consider adding some Lloyds shares to a portfolio around the current price.
