Why Analysts Are Getting Bullish on Lloyds Shares

Lloyds Banking Group (LON:LLOY) is attracting renewed optimism from major investment banks, following the Supreme Court ruling on motor finance that lifted a key overhang on the stock.

Goldman Sachs upgraded Lloyds to “Buy” from “Neutral,” raising its price target to 99p from 87p. Analyst Benjamin Caven-Roberts said the ruling was a “key clearing event,” allowing investors to shift focus back to Lloyds’ “compelling” equity story. 

The bank has indicated that any adjustments to its provisions following the judgement are unlikely to be material.

The U.K. Supreme Court overturned a Court of Appeal decision that had previously expanded the scope of motor finance compensation claims. While the Financial Conduct Authority has estimated total redress could still reach £9 billion to £18 billion, the figure is well below earlier analyst forecasts of over £30 billion.

Lloyds shares jumped 9% on Monday as investors reacted to the news. However, on Tuesday, the stock fell by over 2%, while on Wednesday, it is down 0.4%, although still well above its close on Friday. 

RBC Capital also upgraded Lloyds to “Outperform” from “Sector Perform,” maintaining its 95p target. The bank said the ruling will be viewed positively by the market, also describing it as a “clearing event” for Lloyds.

Meanwhile, Morgan Stanley lifted its price target to 100p from 95p, keeping an “Overweight” stance on Lloyds shares. 

JPMorgan raised its rating to “Neutral” from “Underweight,” citing reduced litigation risk and raising its target to 85p. The bank added that the current levels of provisions held by UK banks are sufficient against the potential liability. 

As a result, it upgraded Lloyds, stating the litigation uncertainty is “the key challenge to the investment thesis.”