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Two years’ ago I wrote time and time again about Lloyds‘ (LSE:LLOY) shares being undervalued. And while the state of the UK economy posed some risks, I believe the shares were massively oversold. Simply, British stocks weren’t in vogue and British banks were even less popular.
However, Lloyds shares are now up 70% over two years. They’re up even more versus my favourite entry point, which was the weeks following the Silicon Valley Bank fiasco. So is the stock still cheap?
Let’s look at the metrics
Lloyds remains an interesting proposition for investors, but it’s no longer clearly undervalued. Its earnings per share (EPS) is expected to grow steadily from 2025 to 2027. Analyst consensus puts the EPS for 2025 at around 6.5p, rising to 9.1p in 2026, and reaching around 11p in 2027.
This would be strong growth even for a tech stock, with EPS growth rates equating to over 20% in 2025 and 26% in 2026, moderating to about 16% in 2027.
The forward price-to-earnings (P/E) ratio, based on these forecasts, is projected to decline as earnings outpace share price appreciation. Estimates suggest a forward P/E of about 8–11.9 times for 2025. This falls to 8.5 times in 2026 and then 7.1 times in 2027.
Dividend payments are also expected to climb from about 3.4p per share in 2025 to 4p in 2026 and then 4.6p by 2027. The dividend yield’s forecast at roughly 4.5% in 2025, rising to about 6% by 2027. Dividend cover — the ratio of earnings to dividends — is strong, improving from around 1.95 times in 2025 to over 2.2 times by 2027. This tells us that payouts are well supported by earnings.
Moreover, with a CET1 ratio comfortably above regulatory requirements and ongoing share buybacks, Lloyds offers both income and balance sheet stability.
However, I’d add that while Lloyds’ expected growth is exceptional, it’s trading slightly above peers in the near term and a little below in the long run. This type of valuation set-up’s common when growth expectations are high but not yet fully proven. After all, nothing’s a given.
The macro picture
So Lloyds isn’t any cheaper than its peers, but it’s still an interesting proposition. The company’s more focused on the UK lending market than most of its FTSE 100 peers. This can be both a drag and an opportunity depending on the macroeconomic picture.
After a period of uncertainty, the UK economy appears to be growing steadily. It’s still not particularly impressive growth, but things are moving in the right direction.
This, coupled with a steady reduction in interest rates, is positive for banks. Lower default risk and still elevated interest income. There’s also the unwinding of the structural hedge, which should be a major boost for all banks.
As always, there are risks. Lloyds’ lack of diversification may means it’s more exposed to any negative consequences of the new US trade policy, eg businesses going bust.
However, I’d simply suggest the business is broadly trading where I’d expect it to be right now. If the growth forecast continues to look good beyond 2027, the stock could certainly push higher in time.
Personally, I like Lloyds, but buying more would unbalance my portfolio. Nonetheless, investors should certainly consider the bank.
