Legal & General (LSE:LGEN) shares have fallen sharply after a strong start to 2026. Like many other FTSE 100 stocks, it’s dropped as conflict in the Middle East has shredded investor nerves. But City analysts think it’s a matter of time before the financial services giant rises again.

The average share price target for the next year is 268.9p. That represents an increase of 5.8% from current levels. With predicted dividends thrown in — Legal & General shares offer a forward dividend of 8.6% — it suggests investors could still enjoy a robust double-digit return.

In monetary terms, a £20,000 investment in the FTSE 100 company today could turn into £22,880 this time next year. Yet broker predictions on share prices and dividends often miss their target. So what are the chances of Legal & General delivering this sort of return?

What could go wrong?

Legal & General’s one of Europe’s biggest financial services companies. With leading positions in fields like asset management, life insurance and retirement solutions, it’s well placed to capitalise on demographic changes and evolving consumer trends.

In other words, demand for its financial services could rise strongly as populations age and financial planning grows in importance. Increased government debt levels in its Western markets means people are looking to rely less on future State Pensions by taking action themselves.

The problem is the firm’s products are still discretionary in nature. Unlike Aviva, for instance, which operates in the defensive general insurance market, demand for Legal & General’s services can fall sharply during downturns. The consequences of a long conflict in the Middle East on economic growth could be significant for the FTSE firm.

That’s not all. With inflationary pressures rising as oil prices take off, interest rates may stay higher than the market had hoped for. This can mean a series of drawbacks for businesses like Legal & General, from slowing the housing sector to weakening stock market returns.

Are worth a look?

Given these dangers, there’s a chance Legal & General shares won’t deliver the returns City analysts expect. I fully expect dividends to meet forecasts given the company’s excellent cash flows and strong Solvency II ratio (217% as of June). But I think its share price might not live up to expectations.

That said, it doesn’t mean share pickers should steer clear of the company. I hold its shares in my own portfolio. As a long-term investor, I’m happy to experience some near-term turbulence if the potential rewards further down the line are lucrative enough.

In this case, I think Legal & General shares will keep outperforming given its enormous structural opportunities. But that’s not all. I’m also encouraged by its expansion into high-growth regions, the strengthening of its asset management business, and its growing role in the pension risk transfer (PRT) sector.

With share price gains and dividends combined, Legal & General’s delivered an average annual return of 9.9% over 15 years. That’s at the top end of the 8% to 10% return that stock markets tend to return over the long haul. I expect it to remain one of the FTSE 100’s strongest performers.