Like so many, the Lloyds Banking Group (LSE:LLOY) share price has suffered as a result of the war in the Middle East. But the truth of the matter is that it was drifting lower before the first missiles were launched.
The bank’s shares are now (2 May) changing hands for 15% less than they were at the start of the February. And analysts have a 12-month price target that’s over 20% higher. Could this be a buying opportunity to consider? Let’s see if the bank’s latest results provide any clues.
What’s the bottom line?
On Wednesday (29 April), Lloyds published its results for the first quarter of 2026. And what stood out to me was its earnings per share (EPS) of 2.4p. This was 0.2p better than for the previous quarter and a 0.7p improvement on a year earlier.
Importantly, it was 0.3p above analysts’ expectations. Before the results were released, they were anticipating EPS for the full year of 9.9p. I wonder if their forecasts will now be upgraded?
Some of the earnings improvement can be explained by a reduction in the number of shares in issue, brought about by the bank’s huge share repurchase programme. But the bank’s also been working hard to reduce its overheads. During the quarter, its cost/income ratio was 52.7%. For 2025, it was 58.6%.
In the first quarter of 2026, the Group delivered sustained strength in financial performance, growing our income, maintaining our cost discipline and delivering strong profitability. Our differentiated business model remains resilient in the context of the current economic uncertainties.
Charlie Nunn, Group Chief Executive, Lloyds Banking Group
Undervalued?
When it comes to assessing valuations, EPS is a key metric. At the moment, Lloyds’ shares are changing hands for around 10 times forecast 2026 earnings. Generally speaking, retail banks trade on a multiple of nine, so this isn’t too far out of kilter.
Looking ahead to 2028, analysts are predicting EPS of 13.7p. With a forward price-to-earnings (P/E) ratio of just over 7, the bank’s shares appear cheap. On this basis, I can see why analysts’ consensus is that they’re worth 120p. At this level, the bank has a forward (2028) P/E ratio of 8.8. This seems very reasonable to me.
But…
However, despite this week’s impressive results, these forecasts seem like a bit of a stretch. Although there’s much to admire about the bank — including its brand and its management team — virtually all of its income is earned in the UK.
Here, growth forecasts have recently been downgraded by both the OECD and International Monetary Fund. Unemployment’s rising and inflation’s starting to pick up again. Also, business confidence is low, which is holding back investment.
I don’t wish to sound negative but I think this is a fair assessment of the state of the domestic economy. Against this backdrop, surely Lloyds can’t double its EPS over the next three years, as analysts are predicting?
That’s why, in my opinion, there are more exciting opportunities to consider elsewhere. Indeed, there are loads of high-quality, rapidly-growing UK companies that generate the majority of their earnings overseas. I believe these are worthy of further investigation.
