Legal & General‘s (LSE:LGEN) share price has been on a roller-coaster ride this year.
It plunged in June after investors reacted badly to its cash generation and dividend targets for the next few years. And it remained down until early December when it published reassuring growth and capital targets.
Yet despite its recent recovery, Legal & General shares remain around 10% cheaper than they were on 1 January. I believe there are multiple reasons why the FTSE 100 firm could rebound strongly in the New Year.
One is its formidable value that could continue attracting the attention of bargain hunters.
Top value
First let’s look at the numbers. At 223.6p per share, Legal & General shares trade on a price-to-earnings (P/E) ratio of 9.4 times for 2025.
This figure falls below the watermark of 10 times. But this is not all.
Expectations of a 23% rise in annual earnings leave the stock on a P/E-to-growth (PEG) ratio of 0.4. Any reading below one suggests a share is undervalued.
Finally, predictions of further dividend growth (to 21.86p per share) mean Legal & General’s dividend yield is an enormous 9.8%.
To put that into context, it’s almost three times larger than the FTSE 100 average of 3.6%.
Risk and reward
Today the London stock market is awash with companies with low P/E ratios and sky-high dividend yields like this. The Footsie alone is packed with such businesses, some of the most prominent being Lloyds Bank, British American Tobacco, and J Sainsbury.
However, many of these — those three included — I wouldn’t touch with a bargepole. Subdued P/E ratios are often signs of high-risk companies and/or ones with poor growth prospects. Those that also have high dividend yields might be using them to compensate for weak earnings and deeper issues with the business.
However, I don’t consider Legal & General shares as a potential investor trap. It’s true that the company operates in a highly competitive industry. And tough economic conditions could impact demand for its products and cause its asset management arm to underperform.
But the firm also has incredible opportunities to capitalise on, in the near term and beyond. I expect sales of its wealth, retirement, and insurance services to rapidly accelerate, driven by a blend of population ageing across its markets and growing interest in financial planning.
In particular, Legal & General has splendid growth potential in the global pension risk transfer (PRT) market. This helps underpin the firm’s target of increasing core operating earnings per share at a compound annual growth rate (CAGR) of 6% to 9% between now and 2027, announced earlier this month.
Large upside?
For these reasons, I think the business will prove a great long-term addition to my portfolio. And if City brokers are correct, its share price could start recovering strongly from 2025.
Of the 15 brokers with ratings on Legal & General shares, eight consider it a Buy or Strong Buy. Six have assigned a Neutral rating on them, while one believes they are a Sell.
Reflecting these largely bullish views, the City has assigned an average 12-month price target of 262.9p per share. That represents a premium of nearly 18% from current levels.
With the prospect of more enormous dividends, too, Legal & General could provide exceptional returns in 2025. I plan to hold mine for the long haul.
