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Is It Still Safe To Buy Aviva Plc?

I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating.

So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.

Today I’m looking at insurer Aviva (LSE: AV) (NYSE: AV.US) to determine whether the shares are still safe to buy at 367p.

So, how’s business going?

Aviva is currently undertaking a huge turnaround programme aimed at cutting costs, reducing the group’s exposure to Europe and simplifying the company’s overall structure.

Indeed, it would appear that the company is already making progress, as within Aviva’s first-quarter management statement, the company noted that operating expenses had fallen by £83m or 10% year-on-year — more than 20% of the company’s total targeted cost saving of £400m.

In addition, during the same three-month period, Aviva reduced internal debt by £300m and the value of new business taken on by the company rose 18%.

Furthermore, in an attempt to simplify the business, four levels of middle management were removed. 

That said, Aviva’s operations within southern Europe continued to show weakness and the value of business written in Spain and Italy dropped 67% and 56% respectively during the quarter.

Expected growth

Unfortunately, Aviva reported a loss during 2012 but many City analysts expect the company’s earnings to rebound this year. City forecasts currently predict earnings of 41.4p per share for this year (up from -15.2p during 2012) and 46.4p for 2014.

Shareholder returns

Aviva was well known for its larger-than-average dividend yield; however, the company was forced to cut its payout earlier this year, citing cash flow problems.

Still, even after the dividend cut, Aviva supports a yield of 5.2% — larger than that of its peers in the life insurance sector, which currently offer an average dividend yield of 3.7%.

Valuation

As Aviva made a loss during 2012, it is not possible for me to calculate a historic P/E for the company.

Having said that, based on estimates for future earnings, I believe the group is currently trading at a forward P/E ratio of 8.7, cheaper than the company’s peers in the life insurance sector, which are currently trading at a historic P/E of around 14.1.

Foolish summary

All in all, based on the company’s progress during the first quarter of this year, above average dividend yield and discount to sector peers, I feel that Aviva still looks safe to buy at 367p.

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As well as Aviva, I am also positive on the five FTSE shares highlighted within this exclusive wealth report.

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In the meantime, please stay tuned for my next FTSE 100 verdict

> Rupert does not own any share mentioned in this article.