Earlier this year, Lloyds‘ (LSE:LLOY) shares crossed above the £1 threshold for the first time in nearly two decades, driven by soaring profits on the back of higher interest rates and wider lending margins.

But could this just be the tip of the iceberg? Could Lloyds’ shares secretly be on track to return above £2 a share? And if so, how long might this realistically take? Let’s explore…

What the experts are actually saying

Institutional sentiment towards Lloyds has turned genuinely bullish this year. The analyst teams at UBS, Citigroup, and Barclays have all been lifting their ratings to stronger Buy recommendations and upgrading share price targets over the last few months.

Yet even among these bullish and optimistic voices, the prospects of a £2 share price for Lloyds don’t look like they’re going to happen, at least not in the next 12 months.

The average consensus sees Lloyds reaching 125p by this time next year, with the most optimistic outlook pointing towards 135p. If those forecasts prove correct, that means a 15.8% capital gain could be on the horizon for shareholders.

But let’s look beyond the next 12 months. Could reaching £2 still be in the cards?

The case for getting there eventually

Lloyds’ latest half-year results give a genuine hint of why analysts are growing more confident. Pre-tax profits jumped 23% to £4.3bn, with net interest margin climbing to 3.19%.

A big driver behind this financial momentum is the bank’s structural hedge portfolio which, in oversimplified terms, allows Lloyds to lock in higher interest rates for multiple years even after the Bank of England began cutting them.

While the effectiveness of structural hedges will eventually diminish, the higher-for-longer interest rate environment emerging from the war in the Middle East has prolonged this timeline. And, in turn, surging profits have started fuelling serious shareholder returns.

The interim dividend jumped 30% to 1.58p, and management announced a fresh £1bn buyback on top of the existing £1.75bn programme already underway, accelerating the journey towards reaching £2 a share.

What could derail the journey?

Realistically speaking, reaching £2 a share would require years of compounding profit growth, sustained buybacks, and a friendlier macroeconomic backdrop all lining up together. And sadly, that just isn’t guaranteed to happen.

Middle East-driven energy inflation risks pushing UK interest rates higher for longer, which is good news for lending margins. But if interest rates climb too high too fast, then it has the nasty side effect of choking mortgage demand and denting loan growth.

It’s the classic ‘too much of something good is bad’ situation. And the impact is only compounded by the bank’s reliance on the UK economy, which is hardly in great shape right now – something that higher interest rates and skyrocketing energy bills will only make worse.

So what should investors make of all this?

Are Lloyds’ shares a good investment?

Overall, with the right market conditions and continued prudent leadership, I think Lloyds’ shares could eventually return to £2+ territory. But it will likely take several years, and pinning down an exact timeline isn’t straightforward.

Nevertheless, investors are being paid to be patient with a 3.5% dividend yield backed by rising profits and expanding margins. So for investors looking to diversify into the British banking sector, Lloyds’ shares could be worth investigating further.

Should you invest £5,000 in Lloyds Banking Group Plc right now?

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Zaven Boyrazian does not hold any positions in the companies mentioned.