The Lloyds Banking Group (LSE: LLOY) share price has gained 51% year to date. And patient shareholders have seen their investments more than treble over the past five years.
With the forecast price-to-earnings (P/E) ratio a bit over 12, some might think the undervaluation is now out. But City analysts don’t seem to share that thought. They’ve been upping their price targets yet again in recent weeks.
Growing optimism
As I write early on Wednesday (17 September), Lloyds shares are selling at 83p. And at the beginning of August, RBC Capital Markets reiterated a price target of 95p. That’s 14% ahead, and would push the P/E multiple to about 14.
That’s close to the long-term FTSE 100 average, and might seem fair by that measure. But I reckon banks are riskier than average. If something bad affects the financial sector directly, I’d expect their prices to tumble. And if the economy or stock market as a whole has a wobble, that would surely hit them indirectly too.
So if the banks suffer, the banks suffer. And if any other business suffers, the banks face a high chance of suffering too. At least that’s the way I see it. And it makes me want a bit more safety margin in the Lloyds share price.
Forecasts
This is based on the 2025 outlook. But if I look further ahead, my fears of possible overvaluation start to fade a little.
Forecasts have the Lloyds P/E at 9 for 2026, dropping as low as 7.6 in 2027. That assumes 80% growth in earnings per share (EPS) between 2024 and 2027, and is based on the current share price.
The 95p Lloyds share price target would suggest multiples of around 10 and 8.7 next year and the year after respectively. And if the mooted EPS growth comes off, I could be seeing the kind of safety margin I like.
Some brokers, however, think things could be even better.
Biggest bull
In late August, Jefferies upped its target price from 92p to 103p. That’s a whopping 24% jump on top of what’s already been achieved this year. And it could mean P/E valuations of 11 in 2026 and 9.4 by 2027.
I think that could be pushing it a bit on the safety front, but it might not be far off fair value.
More recently, on 9 September, JPMorgan pinned a 98p target on the stock — up from 85p. That would put a valuation somewhere between the other two, closer to the lower end.
What next?
There’s a risk in putting too much store in analyst price targets. They often give me the feeling they’re doing little more than chasing the trend — although I’m sure that’s not entirely fair.
And we do need to remember the risk faced by major mortgage lenders like Lloyds when interest rates fall further. Oh, and not forget that our pressured economy is taking a painfully slow time to improve. There could be more rocky days for the Lloyds share price yet.
But at least these analyst views help calm my fears that my Lloyds shares might be getting a bit too hot. In fact, I’m more likely to top up than sell.
