Despite gloomy economic conditions and bubbling fears of a car finance mis-selling scandal, the Lloyds (LSE:LLOY) share price has gone from strength to strength lately. In fact, in just the last 12 months, the banking giant has seen its market cap expand by a market-beating 64%, surpassing the long-coveted 100p threshold.
Of course, the question now is, can Lloyds’ shares continue to climb even higher? Here’s what the experts think.
February forecasts
As one of the most popular companies on the London Stock Exchange, institutional investors are constantly monitoring and updating their projections for Lloyds. And just earlier this month, the analysts at both Deutsche Bank and Barclays upgraded their outlook for the bank.
Instead of 110p, the team at Deutsche now project Lloyds shares to reach 125p over the next 12 months. And it seems the experts at Barclays came to a similar conclusion, raising their target price from 120p to 126p.
Compared to where Lloyds shares are trading today, that presents a potential 22.3% return for investors today. And that’s before counting the additional profits from the tasty-looking 3.6% dividend yield.
So, what’s driving this renewed bullish conviction?
Improved earnings momentum
Digging deeper into these projections, a number of positive catalysts are driving higher expectations. Most notably, the bank upgraded its underlying net interest income guidance for 2026 from £13.6bn to £14.9bn, courtesy of improved lending volumes.
At the same time, with the group’s interest rate hedging efforts delivering margin expansion, the all-important return on tangible equity (RoTE) target also got hiked from at least 15% to at least 16%, signalling superior profitability.
With all this in mind, it’s not so surprising to see Lloyds share price forecasts increase. But even the bullish teams at Deutsche and Barclays have spotted some lingering concerns and risks.
What to watch
While Lloyds’ banking operations are strengthening, uncertainty surrounding the UK economy remains problematic.
Deutsche has actually revised down its outlook for British economic growth. And since Lloyds generates almost all of its profits from the UK, economic weakness can be an early indicator of lower lending volumes as well as higher loan impairments.
Meanwhile, intelligent hedges may have helped bolster the banking net interest margin, but further rate cuts by the Bank of England throughout 2026 and beyond may nonetheless start putting more pressure on lending margins.
To top things off, while concerns relating to the motor financial mis-selling scandal have started to wane, it’s important to note that this story is not yet over.
The FCA’s redress scheme has yet to be finalised. And while Lloyds has put aside £1.95bn in provisions to cover compensation claims, the bank has historically underestimated compensation costs – creating a potentially nasty surprise for investors later down the line.
What’s the verdict?
Overall, the renewed optimism from institutional investors doesn’t feel out of place. Even with some potentially challenging headwinds, Lloyds appears nicely positioned to continue on its current profit expansion trajectory.
I think it’s unlikely that the share price will deliver similar 60% gains in 2026. But for conservative investors seeking a steady dividend and exposure to the British banking sector, Lloyds could be worth a closer look. And it’s not the only financial stock on my radar right now.
