Over £1 now, so Lloyds share price looks cheap to me at anywhere below £1.77
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Lloyds‘ (LSE: LLOY) share price is on a near 18-year high, however there may be more big gains to come. This is because price and value are different things when it comes to sharing.
The price is simply a function of the market supply and demand of the stock at any given time. But the value reflects the true value of the fundamentals of the underlying business.
As famous investor Warren Buffett puts it: “Price is what you pay; value is what you get.” He also urged investors to focus on companies whose value exceeds their value.
So, how much are Lloyds shares really worth right now?
Strengthening through income growth
Ultimately, the value of each company’s shares is driven in the long term by increasing profits (‘profits’). The risk here for Lloyds remains the outstanding compensation claims for the mis-selling of historic vehicles. The FCA’s plan remains under negotiation, leaving the final bill unresolved until the rules are published in February/March this year.
However, the consensus forecast of analysts is that Lloyds’ profits will increase by an annual average of 10.5% until the end of 2028.
This view is well supported by its results. Its full-year 2025 numbers released on 29 January showed profit before tax rose 12% year-on-year to £6.7bn. This exceeded analysts’ forecasts of £6.4bn.
The bank also raised its profit target significantly. It now expects to make a return on tangible equity of more than 16% in 2026, having forecast just 12% in 2025.
It also announced a £1.75bn share buyback, which generally underpins share price gains. This brings the total amount returned to shareholders by 2025 to £3.9bn (including dividend payments). Analysts predict the current dividend yield of 3.4% will rise to 4.7% in 2027 and 4.8% in 2028.
How undervalued is the stock?
Discounted cash flow (DCF) analysis estimates a company’s ‘fair value’ by projecting its future cash flows and ‘discounting’ them to today.
Some analysts’ DCF model is more conservative than mine, depending on the variables used. However, based on my 8—V
Therefore, its fair value could be privately approached at £1.77 a share.
And because commodity prices have reached their fair value over time, this suggests a powerful buying opportunity to consider now… if this modeling proves to be accurate.
My investment idea
I already own two bank shares — HSBC again NatWest – in my portfolio. Adding another would upset its risk-reward balance, so Lloyds is not for me right now.
However, it seems to be a classic case of a strong business whose market price lags behind its fundamental value.
Strong cash generation, strong cost control and growing contribution from fee-based businesses support Lloyds’ earnings outlook. Meanwhile, monetary strength continues to support dividends and buybacks.
Because of that, I think the stock deserves the attention of some investors.
