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Why I think the Lloyds share price could double in 2021

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Wouldn’t we all love to see our shares double in value next year? As a long-suffering holder of Lloyds Banking Group (LSE: LLOY) shares, that’s the one I’d most like to see it happen to. So what might it take for the Lloyds share price to double in 2021?

Things are starting to look a bit better after November’s mini-recovery. Those who bought at the end of October are already up 30%. But it’s small comfort for long-term shareholders.

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Forecasts for 2021 coupled with the current Lloyds share price suggest a forward P/E of 11. That looks low compared to the FTSE 100‘s long-term average. But a doubling in the share price would push the Lloyds’ P/E to 22. And that’s a bit rich, even for a share on a forecast dividend yield of 5%.

Analysts are predicting a 60% drop in earnings per share for 2020, and that is weighing heavily on the Lloyds share price. But with so much uncertainty, there must be a number of factors built in that might not be as bad as feared.

Lloyds share price threats

One is surely Brexit and the question of whether or not we’ll get an EU trade deal. If we don’t, I expect the outlook for Lloyds to darken. Though Lloyds is UK-focused these days, a no-deal departure would be sure to damage the UK’s economy. The extent is debatable, but any economic harm would surely feed through to the banking sector.

But if we do get a deal, I’d expect to see Lloyds sentiment brightening. And whatever downside analysts have factored in to Lloyds forecasts will need to be lifted. In the short term, I’d expect the Lloyds share price to rise in the event of a deal, and fall if there isn’t one. But the slightly longer-term effect will be on the the bank’s 2021 prospects.

Forecasts for 2021 suggest earnings per share growth of around 130%. That might sound impressive, but it wouldn’t quite get us back to 2018 levels. Yet a decent Brexit deal outcome should lead to a better economic performance in 2021. I’d expect that to feed through to the housing market. Lloyds’ mortgage business is actually still pretty healthy, and any property boost would surely help Lloyds shares.

Multiple positive outcomes?

I also don’t think the possible upside from the rollout of Covid-19 vaccinations has been fully incorporated into economic expectations for 2021. On the wider stage, I think such caution is very wise. But on the upside, we could see a considerably better 2021 than our gloomy winter outlook currently suggests.

A confidence boost could result in Lloyds paying a bigger dividend than expected. The current 5% yield is from a predicted dividend of just 1.7p, still well below 2018’s 3.2p. Anything better than that, and we might see an uprating.

Overall, we would need a succession of good news events to see the Lloyds share price doubling in 2021. So I have to admit it’s a bit of a stretch. I do think it’s possible, though. I’m bullish over Lloyds for 2021 either way.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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