Lloyds (LSE:LLOY) shares have defied the naysayers over the past 12 months. Once seemingly weighed down by a Jupiter-like gravity, the bank simply didn’t deliver for its shareholders in the years immediately after the pandemic.
Now, some investors may now be looking up to the £1 mark. That’s still 38% above the current share price, but 12-month price targets cluster between 70p and 90p. This suggests some near-term potential. However, achieving triple-digit valuation demands sustained earnings growth and multiple expansion.
What the numbers tell us
The bank’s forward price-to-earnings (P/E) ratio of 10.7 times may seem high, but likely reflects near-term impairments. Looking forward, current forecasts suggest earnings per share (EPS) could reach 10.67p by 2027, resulting in a forward P/E of 6.5 times. At today’s multiples, this 2027 EPS would imply a share price above £1, but that’s not a perfect comparison given the distorted nature of the 2025 forecast.
Given that Lloyds and other UK banks typically trade at a discount to their US and international peers, comparative data suggests Lloyds will need to demonstrate continued earnings growth beyond 2027 in order to achieve a three-digit share price. What makes me think that? Well, global banking benchmark JPMorgan is trading at 11 times projected earnings for 2027. At best, Lloyds will trade with a 25% discount to JPMorgan despite its very attractive dividend yield.
Catalyst watch
Several catalysts could accelerate progress. Morgan Stanley‘s upgraded 90p target highlights potential from the structural hedge delivering £1.2bn income boost in 2025 and 9% net interest income growth in 2026. Successful execution on non-interest income streams (insurance, wealth management) could also drive multiple rerating.
What’s more, Lloyds looks cheap compared to the value of its assets. The shares trade at 0.86 times forward price-to-book value, suggesting room for revaluation if return on equity improves from the current 9.6%.
However, the motor finance overhang remains critical. While Lloyds has provisioned £1.2bn, RBC Capital‘s £3.2bn worst-case estimate and the impending Supreme Court ruling on commission structures create uncertainty. A favourable judicial outcome in April 2025 could remove this drag, while adverse rulings might necessitate further provisions. It still represents a risk for investors.
Long-term investors might find encouragement in the dividend forecast. The forward yield stands at 4.7%, but this is forecasted to hit 6.4% in 2027. Given earnings projections, this dividend would still be covered 2.3 times by earnings. That’s a strong and sustainable ratio that should afford Lloyds something of a premium.
It’s not off the cards
In addition to the above, the bank’s digital transformation and cost-cutting initiatives could drive operating leverage as loan growth recovers. However, for shares to sustainably breach £1, markets would need confidence in sustained mid-single-digit revenue growth, contained credit losses, and successful resolution of legacy issues.
While not imminent, disciplined execution against these objectives could make the £1 milestone achievable within this decade. And like other investors, I’m still cautious that sentiment could shift against this bank… again. Nonetheless, I’m holding onto my Lloyds shares and don’t expect to buy more in the near term.
