Stock market

Aviva’s share price is expected to increase by 17%! Time to buy?

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gave Aviva (LSE:AV.) share price has made some impressive gains as interest rate cut hopes have risen. At 491.2p per share, FTSE 100 The life insurance company is up 13 percent since the start of 2024.

UK share prices in general have risen sharply, raising fears of a bubble. Higher-than-forecast inflation and economic uncertainty mean some believe recent price increases are difficult to justify.

But Citi analysts do not believe Aviva’s share price is about to fall. Instead, they predict it will continue to grow.

Fifteen analysts currently have ratings on Aviva shares. And they have an average 12-month price target of 510p per share. This suggests a 4 percent increase from current levels.

Some number-crunchers are even more optimistic. The highest price target is 575p, which represents a 17% premium to recent levels.

But how realistic are such predictions? And should I buy Aviva shares today?

Good trading numbers

Despite tough conditions in its core markets, Aviva is performing strongly, as this week’s latest trading numbers show. If this continues, share prices may rise further.

General insurance gross written premiums (GWPs) at Aviva rose 16% to £2.7bn in the first quarter, thanks to positive pricing initiatives and new business growth. In the UK and Canada, GWPs increased by 19% and 11% respectively.

Strong demand for its safety products led to a 5% increase in safety and health sales. Meanwhile, higher bulk purchase annuity (BPA) volumes pushed turnover in its retirement division higher by 19%.

Finally, Aviva’s asset management division also continued to perform well. Net wealth flows rose 15% year-on-year to £2.7bn.

In large form

Aviva's market position in product categories.
Source: Aviva 2023 Annual Report

I wasn’t surprised by the power of the firm’s latest update.

Yes, consumers have less money to play with now. But Aviva is the market leader in a number of product categories, as the graphic above shows. It has the brand power to perform strongly, even when the broader industry is struggling.

I believe the business is in good shape to continue growing revenue as well. Insurance, wealth and retirement segments are tipped for steady growth thanks to demographic changes (i.e. rapidly aging population).

On top of that, Aviva’s drive to digitize its operations is also paying off handsomely. Its AI-powered pension tracing service, Fabric, reported a more than 50% increase in transfer inflows in 2023.

Too cheap to ignore.

But can Aviva’s share price continue to rise over the next year, or is the price good news?

An uncertain economic outlook and interest rate environment could also dampen price growth in the near term. Still, I think the cheapness of Aviva’s shares leaves plenty of room for it to continue growing.

On the one hand, they now trade at a forward price-to-earnings (P/E) ratio of 11.7 times. This is 11 times the FTSE 100 average.

But they also deal on the same price-to-earnings growth (PEG) ratio of 0.8. Any sub-1 reading indicates that the stock is undervalued.

Finally, Aviva’s 7.2% forward yield also reflects excellent value for money. The Footsie equivalent sits half below that level, at 3.5%.

With the company looking so cheap — and looking good to continue growing dividends over the long term — I think it’s a top stock to seriously consider today.

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