Whether you believe Lloyds Banking Group (LSE:LLOY) shares are overvalued, undervalued, or fairly priced, it’s impossible to deny that they’ve been one of the FTSE 100’s star performers over the past year or so. But how might they perform in 2026? Let’s take a look.
An amazing year
They used to joke that Lloyds’ shareholders were the financial equivalent of children in the back of a car going on holiday, shouting: “Are we there yet”? That was until 2025. After being stuck in the doldrums since the global financial crisis of 2007/2008, last year saw an increase of nearly 80%.
I think it’s fair to say that the stock’s finally arrived. But can this amazing rally continue? The consensus of 15 analysts is that the bank’s shares are worth 119p. Compared to today’s (13 February) price of 103p, that’s a premium of around 5%.
But there’s a wide variation in the forecasts. The lowest is 84p and the highest is 130p. Clearly, the 75p and 150p mentioned in the headline are outliers.
On this basis, it’s probably better to ask: is the share price more likely to sink towards 84p or rise closer to 130p? Here’s a quick look at both sides of the argument.
The bull case
The bank beat expectations in 2025 with earnings per share (EPS) coming in at 7p, 0.3p higher than predicted. Although the stock trades on an expensive 14.7 times this figure, it’s the future that really counts.
Based on 2028 forecasts, the multiple drops to 8. In fact, this is less than the European average for the sector of 9, according to Barclays.
These forecasts are predicting impressive growth. By 2028, EPS is expected to be 83% higher and the return on tangible equity 5.1 percentage points better than in 2025. Over the same period, the net interest margin’s predicted to increase from 3.06% to 3.45%.
The bear case
On the other hand, Shore Capital has described exceeding expectations in 2025 as a “relatively low-quality” beat. It said it was only achieved because impairment charges (potential and actual bad loans) were lower than anticipated.
It also warned that the industry could face a windfall tax if “supernormal” profits continue.
With its near-total reliance on the UK economy, Lloyds is also vulnerable to a domestic slowdown. And if interest rates fall as expected – the bank’s predicting two 0.25% cuts in 2026 – its margin could come under pressure.
My view
Personally, I feel 130p’s a bit of a stretch. Looking ahead to 2028, it would require a 3.45p (27%) increase in forecast EPS or an uplift in the stock’s earnings multiple to 10.2, all other things being equal.
Having said that, I can’t see it falling much either. The bank’s launched another share buyback programme, which is likely to help its stock price and it remains popular with income investors. Although the share price rally has reduced returns for new shareholders, the stock’s still yielding 3.6%.
In my opinion, Lloyds’ share price is unlikely to change much during 2026. Of course, it will experience the normal ebbs and flows typical of the stock market but I suspect it will end the year roughly where it started. I reckon there are better opportunities to consider elsewhere.
