New price targets for Lloyds Bank, Barclays, NatWest and others

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New price targets on Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) have backed further progress after a year when the sector accounted for 40% of the FTSE 100’s points advance.

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City firm Jefferies said it was becoming increasingly difficult for underweight funds to ignore banks when their overall weighting has grown to 17% of the FTSE 100 and they still trade at an approximate 25% discount to the wider market.

It added that it was remarkable that banks were on a broadly similar two-year forward price/earnings (PE) multiple as the average since the financial crisis, despite the improvement in profitability and reduction in risk versus much of that period.

Jefferies said: “The simple passage of time may help rectify this, with every quarter of delivery adding support to the thesis that bank profits are more predictable and sustainable than in the past.”

The bank lifted its price target on Barclays by 19% to 560p, Lloyds by 13% to 119p and NatWest by 14% to 720p. Completing a clean sweep of Buy recommendations of the five UK domestic players, FTSE 250-listed OSB Group (LSE:OSB) and Paragon Banking Group (LSE:PAG) have price targets of 740p and 1,060p respectively.

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The City firm’s new targets incorporate 2028 estimates for the first time, with earnings per share seen on average 10% higher than its 2027 expectations.

The UK domestic banks delivered an 80% total shareholder return in 2025, taking the aggregate over the last two years to 185% and more than five-times the wider UK market.

The industry’s five leading players contributed 717 points to the 1,800-point increase of the FTSE 100 in 2025, led by the 318 points or 18%, of HSBC Holdings (LSE:HSBA). Barclays added 128 points or 7%, Lloyds 117 points or 6%, NatWest 86 points or 5% and Standard Chartered (LSE:STAN) 68 points or 4%.

The 2025 advance reflected a 10-15% upgrade to medium-term consensus forecasts and a re-rating of the sector from a two-year forward price/earnings (PE) multiple of six times to 8.1 times by December.

However, Jefferies thinks there’s considerable scope for the multiple to go higher.

While the sector has come a long-way from 5.4 times at the start of 2024, a multiple of eight times is still well below the median of the European banks at 10 times. In fact, nearly a quarter of the EU banks now command a two-year forward PE of 11 times or more.

This reflects the market’s materially higher cost of equity (COE) position than it has on many of the European banks, driven by factors including the UK’s fiscal position and politics.

Jefferies points out that a COE decline from 12.5% to about 11% would be in line with an increase in two-year forward PE towards 10 times.

It adds that there are only three banks in its European banks coverage that still trade at a discount to their 12-month forward tangible net asset value.

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Jefferies said: “The days of making ‘easy’ money owning such stocks - where longer-term profitability considerations are arguably secondary - is largely over.

“Investors looking to lift exposure to European banks may thus increasingly turn to shares on a low P/E. From a demand perspective, this bodes well for the UK banks.”

In 2025, less than a quarter of shareholder return in the European sector came from dividends and buybacks but Jefferies said this may become half or more over the next few years.

The report says this heightens focus on the five UK domestic banks, all of which are in Europe’s top 10 for projected aggregate yield across 2026-27. The list is led by Lloyds at just below 25%, followed by OSB.

Jefferies said the biggest risk to the investment case remains as it was in 2025, a major revision in interest rate expectations. It also flagged the potential impact of a change at the top of government and an intensification of deposit market competition, driving tighter margins.