The Aviva (LSE: AV.) share price fell 6% Thursday (13 November) even after solid third-quarter figures. I see reasons why this might just be a brief pullback, as analysts keep raising their targets.
I suspect some profit taking, with the shares up 43% in the past 12 months. But investors could also be watching out for any signs of cracks in the strong sector performance in 2025.
Even after a year of price gains, the Aviva dividend still looks attractive. A forward 5.7% yield isn’t as high as it was, but analysts see more future rises coming.
Upbeat quarter
The key takes for me from the quarter are all about the future, after Aviva said it’s set to hit 2026 targets a year early. So we should now expect to see operating profit of around £2.2bn as soon as the end of 2025. Investors should circle FY results day on 5 March on their calendars.
Aviva expects Direct Line to contribute about £150m to operating profit this year. CEO Amanda Blanc, who spearheaded Aviva’s transformation, said: “The integration of Direct Line is well underway and we are increasingly confident of reaping the full benefits of this acquisition, contributing materially to Aviva’s future growth and shareholder returns.”
She also spoke of “£225 million in cost synergies,” and said she expects share buybacks to resume next year.
Uprated targets included a return on equity of over 20% by 2028, with cumulative cash remittances above £7bn between 2026 and 2028.
But the price fell
So why the Aviva share price fall on the day? It’s not obvious. But I suspect valuation fears could be part of it. The forward price-to-earnings (P/E) ratio is up at 12.5 now.
That’s lower than the FTSE 100 average. But given the cyclical nature of the insurance business, investors usually want a decent discount to cover the increased volatility risk.
I suspect the economy is possibly the darkest cloud on the Aviva horizon, after UK growth slipped to just 0.1% in the latest figures. That could help spur the Bank of England to lower interest rates a bit more quickly.
And those two things — weak economic growth and low interest rates — are traditional drags on the insurance industry.
More growth on the cards
I’m highlighting some possible negatives here, but I think it’s quite a stretch to be bearish about the Aviva share price right now. And City analysts seem to agree, having been lifting their price targets of late.
One of the most recent, UBS, has set a new target of 750p on the stock — up from a previous 740p. That would mean a 15% increase from the price at the time of writing.
Forecasts also suggest a further 20% boost to earnings per share between 2025 and 2028 — on top of the gains the company expects this year. And they hint at a dividend yield close to 7% by 2027, at today’s share price.
The Aviva boss was upbeat, saying: “The outlook for Aviva has never been better.” She hasn’t been wrong so far — I’m holding.
