Since December 2024, the Lloyds Banking Group (LSE:LLOY) share price has risen by approximately 75%.This means it’s now close to the 12-month target of analysts. But looking ahead to next year, could it be something of a dark horse by beating their forecast? Alternatively, might it be a bit of a black sheep and bring disgrace to the FTSE 100?
Let’s take a look at both sides of the debate.
A dark horse?
Anyone having their doubts about whether the bank’s share price will continue its rally should look at the forecasts of analysts.
By 2027, the consensus is for earnings per share to increase from the 6.3p reported in 2024 to 11.3p. This is based on an improvement in its net interest margin from 2.95% to 3.39%. And a reduction in the ratio of the bank’s costs to income from 60.4% to 48.7%. Over the same period, the ‘experts’ are predicting the bank’s return on tangible equity to improve from 12.3% to 17%.
If that’s not enough, the 2027 dividend per share is anticipated to rise by 51% compared to the 3.17p paid for 2024.
These numbers are very impressive. If the bank can achieve these I have no doubts that its share price will move higher still.
A black sheep?
On the other hand, some might argue that the forecasts appear overly optimistic. That’s because the direction of travel for interest rates appears to be downwards. This is likely to put pressure on the bank’s net interest margin. Also, there seems to be a bit of a ‘price war’ taking place in the UK mortgage market.
It’s believed that Lloyds is responsible for 20% of new housing loans so it’s likely to be materially affected. In October, the Bank of England reported that the actual interest rate paid on new mortgages was now the lowest since January 2023.
Also, nearly all of its revenue comes from the UK. The Office for Budget Responsibility has downgraded the country’s medium-term growth forecasts, which doesn’t bode well for the bank. Increased loan defaults and a general downturn in business activity remain a twin threat.
My view
Personally, I’m more persuaded by the bearish arguments.
I think investors have already priced in a positive growth story. If there’s any sign of a slowdown in earnings or an indication that the bank’s not doing as well as analysts expect, I suspect there will be a sharp pullback in Lloyds’ share price. And because the forecasts are extremely optimistic, I think this remains a distinct possibility.
But the bank has more shareholders than any other UK company. I suspect many of them are holding the stock for its above-average dividend and are less interested in the ups and downs of its stock market valuation.
That’s why I reckon the Lloyds share price will be neither a dark horse or a black sheep in 2026. Instead, I suspect it’s likely to be more of a tortoise. In other words, unlikely to do very much.
That’s why I reckon there are better opportunities to explore elsewhere in the FTSE 100, including other stocks in the banking sector.
