Lloyds Banking Group (LSE: LLOY) shares have had a rocky couple of weeks since the US fired a salvo of tariffs at its key trading partners around the world.
The Lloyds share price has been moving up and down almost as quickly as the words from the White House have been changing.
Forecast uncertainty
It makes things tricky for private investors. And it’s good to remember that the City’s professional analysts don’t really have it any easier at times like this.
Forecasts for the current year put Lloyds shares on a price-to-earnings (P/E) ratio of about 10.5. In normal circumstances I’d see that as cheap. I expect banks to be valued more lowly than the FTSE 100 average in tough economic times, as they can’t really do anything other than sit there and take the hit. But that might be too little.
Is it lower because of the risk from the car loan mis-selling case at the Supreme Court? I’m sure it is, but I don’t know by how much. I’d presume the brokers have allowed for the £1,150m the bank has already set aside.
How many have allowed for further damage, to cover fears that the case could cost a lot more than that? It’s impossible to tell. But in their place I’d be lowering my outlook to some degree based on the worst case.
Unknown unknowns
How much of the US tariff uncertainty has been included in the current City outlook? I’d suspect none yet, as it can take weeks for them to work out their new projections and set new targets. Or decide which finger to stick in the air this time, depending on one’s take on their methods!
The one thing I’m sure of is that I’ve no idea what the Trump administration will come up with next. And never mind the answers to any questions, I don’t even know what the next questions might be.
With all this uncertainty, I’d want to see a valuation for Lloyds that leaves a fair bit of safety margin. And it actually might be there.
Forecasts see earnings per share (EPS) rising enough in 2026 to take the P/E down to under eight. And for 2027 we see forecasts dropping it to 6.5. Unless things go catastrophically wrong, that could make the current share price turn out to be a steal.
What can go wrong?
The trouble is, the UK’s banks seem to be adept at pulling a fresh catastrophe out of the bag when it’s least expected. I’ve changed from hoping there’ll never be another mis-selling scandal to wondering what the next one might be.
With so much in the air, I’m not surprised some analysts have moved to Hold from Buy on Lloyds. I echo them. Right now, I intend to hold my Lloyds shares. And I won’t consider buying more until at least July. That’s the soonest the Supreme Court said to expect its judgement.
The consensus price target stands at 76p, just 8.6% ahead of the price at the time of writing. It seems they’re not expecting much short-term share price action.
