When could the Aviva share price break £5?

The Aviva share price has been heading in the right direction in recent months. This Fool takes a look at what could see it break £5.

| More on:

Image source: Aviva plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

£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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »

Investing Articles

If I’d put £5,000 in Scottish Mortgage shares at the start of 2024, here’s what I’d have now

Scottish Mortgage shares have staged a recovery lately, powered by the public and private growth stocks held in the portfolio.

Read more »

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 tracker fund 5 years ago, here’s what I’d have now

Investing in a FTSE 100 index fund is a terrific way to start building wealth passively with minimum effort. But…

Read more »