The last 12 months have been terrific for the Lloyds (LSE:LLOY) share price. The British banking giant has flourished under a higher interest rate environment, enabling the share price to rise by almost 40% over the last year.
Lloyds isn’t the only bank that has benefitted from a better lending environment. Barclays and NatWest Group have also enjoyed a rally this year. But could the growth seen so far be just the tip of the iceberg? Let’s take a look at the latest analyst predictions for Lloyds.
A mixed bag of opinions
Despite the positive momentum behind Lloyds shares, it seems most institutional analysts are largely on the fence about whether the bank’s worth buying today. Of the 19 analysts tracking the business, only seven seem to think Lloyds shares are a good stock to buy right now.
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| Opinion | Analysts |
| Buy | 1 |
| Outperform | 6 |
| Hold | 11 |
| Sell | 1 |
| Strong Sell | 0 |
What about share price predictions for Lloyds shares? As of October, the most pessimistic outlook for the next 12 months places the stock price at 54p, with the most optimistic at 83p.
In terms of upside potential, shareholders could reap as much as 51% return versus today’s valuation. And better yet, the downside seems to be quite limited, given that 54p seems to be in line with the group’s current trading level.
So what should investors make of all this?
The bull and bear cases
The expansion of the bank’s net interest margin kickstarted a huge wave of profits for Lloyds. As one of Britain’s biggest lenders, even a 1% increase in profitability translated into a significant expansion of earnings. And while interest rates are now starting to fall again, the resulting rebound in the financial markets is enabling its investment division to reap even more profits for shareholders.
Needless to say, this is all rather good news. And since the financial markets are expected to continue rising as interest rates fall further, why aren’t the experts more bullish on this bank? The answer lies in regulatory uncertainty.
Lloyds has found itself at the centre of an investigation by the Financial Conduct Authority over commissions of motor financing policies. Close Brothers Group recently found itself receiving a less-than-favourable court ruling that sent its share price crashing more than 30%. And even Lloyds shares suffered a double-digit tumble as investor concerns continue to mount up.
From a valuation standpoint, the Lloyds share price looks fairly cheap. Its current price-to-earnings ratio sits at just 8.0. That’s notably below some of its leading peers and around half that of the FTSE 100‘s average. Nevertheless, this cheap-looking valuation may be justified by the uncertainty of the ongoing regulatory investigation that could see the bank being fined heavily. For now, I’m sticking to the side of caution and keeping Lloyds on my watchlist.
