When will resurgent Lloyds shares hit 60p?

Lloyds shares have once again risen above 50p, but momentum has slowed a little. Could the stock push to 60p, or should I not hold my breath?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close-up of British bank notes

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Lloyds (LSE:LLOY) shares will undoubtedly hit 60p one day. That’s something I’m pretty confident about. However, most of us would like to know if that’s likely in the near-medium term. After all, we all love a quick win and time has an opportunity cost.

What the City says

City and Wall Street analysts provide ratings and price targets on the stocks they cover. This can be a really useful place to start when trying to work out how much a stock can be worth. Of course, these ratings can be wrong, and they’re often not updated as frequently as we might like. However, the consensus offers us a good starting point.

So, the average Lloyds share price target is 59.3p. That’s been raised since I last looked, and it’s also 17% above the current share price at the time of writing. A couple of months ago, Lloyds was trading around 40% below the average share price target. Clearly the margin is smaller now, but it’s still positive.

However, it appears that analysts don’t believe Lloyds is worth 60p a share at this time. So maybe we’d be foolish to think Lloyds might hit that milestone this year.

What the metrics say

Lloyds trades at 7.9 times forward earnings. Compared to recent years, that’s a little expensive. But there’s reason for this. The share price is up, and Lloyds is actually forecasted to earn a little less this year, due to an impairment on motor loans. The banking giant has set aside £450m to cover the potential cost.

However, this price-to-earnings ratio represents a discount of 21.6% to the wider global financial sector. British banks have traded at a discount to their American peers for some time. Part of the reason for this, some suggest, is a hangover from the financial crash of 2008. Investors don’t want to get burned again.

By comparison, JPMorgan is currently trading at 12.3 times forward earnings. Bank of America is trading at 11.6 times forward earnings. Yes, the US is a much stronger economy than the UK right now, but these two banks are actually expected to grow earnings more slowly than Lloyds.

For further context, Lloyds is trading at a 35.2% discount to JPMorgan. We often talk about the valuation gap between American and British companies, and this is something that could change in the coming years. Analysts have suggested the US market is getting a little overcrowded… the UK certainly isn’t.

A golden period

I recognise there are still plenty of challenges in the near term for cyclical stocks like banks. High interest rates and slow economic grow are a recipe for widespread defaults.

However, I’m relatively optimistic about the future. The UK is forecasted to be the strongest major economy in Europe over the next two decades, and in the medium term interest rates are set to find the Goldilocks zone.

So, what’s the Goldilocks zone? This is when interest rates settle somewhere between 2.5% and 3.5%. It means that net interest income remains elevated for banks, but customers don’t suffer under the weight of heavy repayments.

When will Lloyds hit 60p? I don’t think it’ll be this year, but if results continue to impress, it could be sooner than many anticipate.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Fox has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

More on Investing Articles

Young woman holding up three fingers
Investing Articles

Just released: our 3 top income-focused stocks to buy before December [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Up 125% in 5 years, the BAE share price has beaten Rolls-Royce. Which is better?

Both the BAE and Rolls-Royce share prices have been having a storming time. Here's how they stack up against each…

Read more »

Investing Articles

With P/E ratios of 7.2 and 9, I think these FTSE 100 shares are bargains!

The FTSE 100 has risen sharply in 2024, but there are still lots of top value shares out there. Royston…

Read more »

Investing Articles

This skyrocketing US growth stock has put all others to shame — including its core investment!

Up 378% this year, the spectacular growth of this US tech stock is leaving all others in the dust. But…

Read more »

Investing Articles

I’d buy this FTSE dividend share to target a lifelong second income

Our writer thinks investing in dividend stocks from the UK stock market is the best way for him to generate…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing For Beginners

The Barclays share price keeps surging! Was I wrong to sell the stock?

Jon Smith explains why the Barclays share price is still rising, even though he feels that further gains could be…

Read more »

Investing Articles

1 stock set to gatecrash the FTSE 100 in 2025!

Our writer considers a quality stock that's poised to join the FTSE 100 next year. Could there also be a…

Read more »

Businesswoman calculating finances in an office
Investing Articles

As earnings growth boosts the Imperial Brands share price, is it a top FTSE 100 dividend choice?

The Imperial Brands share price has come storming back as investors piled in for the big dividends. What's next, after…

Read more »