Long-suffering Lloyds Banking Group (LSE: LLOY) investors had cause for cheer in 2025 as the share price soared nearly 80%. As we reach the end of the year, the shares are hovering around the £1 mark.
But what should we expect in 2026? Is the rally over, or can we hope for even more in the coming months? I’m still optimistic, and I want to offer three reasons.
Forecasts
Lloyds has been through a few tough years for profits, with earnings per share (EPS) dropping in 2024. But analysts expect the 2025 full year to show a modest EPS rise, followed by a solid acceleration starting in 2026. In all, forecasts show EPS soaring 80% between 2024 and 2027.
There’s an expected dividend yield of 3.4% on the cards for this year, which isn’t so great. But brokers expect it to be up at 4.9% by 2027. That’s far from the FTSE 100‘s biggest, but it’s solidly progressive.
The company itself is upbeat too, as CEO Charlie Nunn spoke of “confidence in our performance for the year and our 2026 guidance” at Q3 time.
Valuation
These upbeat forecasts will surely boost confidence, though the current Lloyds share price does push the valuation up a bit. What’s a fair price-to-earnings (P/E) bank valuation in the current tough economic climate? It’s hard to say, but I reckon the risks mean I’d ideally want to see a bit of safety margin compared to the FTSE 100 average.
And I don’t think we have that, with Lloyds on a P/E for 2025 of 14.5. Still, if those forecasts turn out accurate — which is definitely not certain — we should see that fall to around 8.5 by 2027 on the current share price.
To me, that paints Lloyds shares as good value for the longer term, but close to full value in the short term. The City analysts seem to share my longer-term view, with a solid Buy consensus on the stock.
Housing
Finally, I see growing signs that the UK house builders could be set for a resurgence. The long-term demand is still there, with the country still facing a serious shortage of homes. But high interest rates have held many would-be buyers back from taking the plunge.
The Bank of England cut the base rate to 3.75% in December. That’s nice, but it’s still high. And the bank suggested decisions on future rate cuts could be tougher to call. Still, it’s the right direction. And any further progress in 2026 could boost sentiment towards mortgage lenders — with Lloyds being the UK’s biggest.
Further rate cuts should pressure Lloyds’ interest margins, which could dent the share price. And that is a worry. But for my money, the balance leans in favour of Lloyds.
Verdict?
Should investors consider Lloyds shares in 2026? At the current price, I’d say a cautious yes — though I think I see better value options. For me, Lloyds is a solid Hold and I’ll wait and see how the year starts out before thinking of maybe buying more.
