Lloyds‘ (LSE:LLOY) shares have had a wild couple of years. After delivering an extraordinary 82% gain in 2025 (one of the strongest performances in the entire FTSE 100), the stock briefly touched a high of 112.6p earlier this year before pulling back to around 95p today.
That’s a 15% slip from the peak. But for investors watching from the sidelines, it raises an important question: has a buying opportunity just opened up?
What do the latest results say?
Lloyds reported its first-quarter 2026 results on 29 April, and the numbers were genuinely impressive. Earnings per share (EPS) came in at 2.4p, beating analyst expectations by 0.3p and up from 1.7p for the same period a year ago.
As the bank puts it:
“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.”
With full-year EPS expectations now sitting at 9.9p, Lloyds is trading on around 9.6 times forecast 2026 earnings. That’s slightly ahead of the wider retail banking sector average of nine times. But with a knack for delivering better-than-expected results recently, this small premium appears to be well earned.
Looking out further to 2028, experts now predict earnings to rise even higher to 13.7p, bringing the 2028 forward price-to-earnings ratio to just 6.9 times compared to today’s price.
That sounds like a compelling entry point. But of course, no forecast is ever set in stone. So where’s the risk?
Bull case vs bear case
Lloyds generated a return on tangible equity (RoTE) of 14.6% in 2025 (excluding motor financing charges), once again beating expectations. And it was underpinned by strong net interest margins and a more favourable resolution of the motor financing mis-selling scandal.
In the first quarter, underlying RoTE improved even further to a staggering 17%. That’s certainly a powerful start to 2026. And it explains why the current consensus points to a share price target of 121p.
Yet, at the same time, there are some material headwinds looming. Higher inflation from the Middle Eastern conflict is expected to keep interest rates higher for longer. While that could prove beneficial for the bank when it comes to lending margins, it also directly drives down demand for new borrowing activity, particularly mortgages.
In other words, while profit margins remain healthy, Lloyds could find it much harder to drive volume growth, resulting in targets potentially being missed.
Even if volumes remain robust, Lloyds could find itself in the crosshairs of politicians seeking to implement windfall taxes on the bank. And given the state of UK public finances, it isn’t unreasonable to assume the government will consider raising taxes on the sector.
So where does that leave investors today?
What’s the verdict?
The pullback from 112.6p to 95p has made Lloyds’ shares considerably more interesting from a valuation standpoint.
The stock’s trading at a small premium relative to its industry. But as the first quarter results demonstrated, there’s a good reason why. Slap on a 3.7% yield, and it’s hard not to be tempted by this quality institution, even with the macroeconomic and political uncertainty.
With that in mind, for investors seeking exposure to the UK banking sector, Lloyds’ shares could be worth a closer look.
