As I write, the Aviva (LSE: AV.) share price is £4.80. That means the stock would have to climb 4.2% to break the £5 barrier.
The shares have already flirted with £5 this year. But after failing to break it, they’ve since retreated.
FTSE 100 stocks are rallying this year. Year to date, the index has soared 7.2%. Bearing that in mind, on paper it seems highly likely that we’ll see it hit that barrier soon.
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£5 this year?
I’m confident we’ll see the insurance stalwart reach that mark this year. In fact, I think it could climb higher. The stock has been gaining momentum in recent times. Year to date, it’s up 10.7%. In the last 12 months, it has seen 18.4% added to its value. The 12-month price target is £5.17. That represents a 7.7% premium from its current price.
What could get it there?
But what makes me think it will get there? One factor is its valuation.
The stock currently trades on 12.7 times earnings. That’s below industry peers such as Admiral Group, which trades on 24.5 times earnings. It’s also slightly below its long-term historical average of nearly 14.
On top of that, I’m a big fan of the moves CEO Amanda Blanc has taken. Under her guidance, Aviva has got rid of over a dozen underperforming businesses as it vies to streamline. Going forward, there’s talk that it plans to offload more including in regions such as India and China.
Moves like this have helped the business define its ambitions and cut costs in the process. Last year it delivered its £750m cost reduction target a year ahead of schedule. In its latest update for Q1, it said it remains confident in achieving the targets it set out last year. This includes targeting £2bn in operating profit by 2026. For 2023, it totalled £1.47bn.
Substantial yield
There’s one more factor I think makes Aviva shares attractive at their current price. The stock has a 7% dividend yield. That’s nearly double the FTSE 100 average (3.6%). Alongside its handsome payout, last year it announced a £300m share buyback scheme.
The threats
That said, there are threats I see surrounding Aviva. While its streamlining operation seems to be working, it naturally comes with risk. The business is now reliant on only a few markets. If they fail, that will have major implications for the firm, given its lack of geographic diversification.
What’s more, the insurance industry is super competitive. Aviva faces the risk of rising players in the field, especially insurtech.
Time to buy?
But even factoring in these risks, I think it’s likely we see Aviva surpass the £5 barrier this year and go even higher. I like the direction that the business is going in under Blanc. Its shares also look fairly priced and with its substantial yield, there’s also a great opportunity for investors to make passive income.
If I had the cash, I’d be keen on opening a position in Aviva. I think it’s a stock that investors should consider buying today.
