Analysts Downgrade Lloyds Banking Shares On Valuation Concerns

UBS and RBC Capital analysts have moved to downgrade shares of Lloyds Banking (LON: LLOY) following the company's interim results last week, citing valuation concerns as the primary motive.

Lloyds reported a 14% decline in first-half pretax profit to £3.3 billion, slightly above the consensus estimate of £3.21 billion. However, tougher-than-expected trading conditions and growing costs impacted its shares.

Lloyds reported that operating costs increased by 7% to £4.7 billion pounds over the period. The bank's net interest margin was 2.94%.

Guidance was unchanged, with Lloyds stating that it is confident in meeting its targets for this year and into 2026.

On Friday, Analysts at RBC Capital downgraded Lloyds to Sector Perform from Outperform with an unchanged price target of 60p a share.

In a research note, the bank told investors that it continues to feel Lloyds is a well-managed bank with favorable strategic positioning. However, they “have run out of runway in valuation terms,” with the downgrade reflecting the shares hitting the firm's price target.

Meanwhile, this week, UBS struck a similar tone, downgrading Lloyds to Neutral from Buy, lowering the price target to 61p from 62p.

While UBS said the bank's earnings are “broadly stable” following its latest earnings release, with rising net interest income and good payouts, they state that Lloyds shares trade at a “premium valuation” compared to the sector and local peers.

Lloyds shares have performed well of late, climbing 25% so far this year and more than 34% in the last 12 months.