Aviva’s (LSE: AV) share price still suffers from the long shadow of its past, in my view. The market prices the firm as if it were still the messy, sprawling, dividend‑cutting insurer investors remember.
But the Aviva of 2026 is a very different operation: capital‑light, cash‑rich, tightly focused and consistently delivering on its financial targets ahead of schedule.
That disconnect is precisely this misalignment that creates such a compelling undervaluation opportunity for savvy long‑term investors.
Undervalued to peers?
A good starting point to assess whether a stock is undervalued is comparing it on key measures with its competitors. I use forward-looking measures because I am interested in a firm’s future earnings power, not what it has done in the past.
On the key price-to-sales measure, Aviva’s 0.5 is bottom of its peer group, which averages 2.1. The firms comprise Legal & General at 1.3, Admiral at 1.7, Swiss Life at 2.6, and Prudential at 3.1. So, it looks very undervalued on this basis.
The same is true of its 12.6 price-to-earnings ratio against the 12.9 average of its competitors. And it also looks cheap on its 1.8 price-to-book ratio versus its peers’ average of 4.
Truly undervalued?
A discounted cash flow analysis pinpoints where any stock should be priced — its ‘fair value’ — based on the underlying business’s fundamentals. It does this by projecting a firm’s future cash flows and then discounting them back to today. Some analysts’ modelling is more bearish than mine though.
However, based on my own DCF assumptions — including a 7.2% discount rate — Aviva shares are 51% undervalued at their current £6.09 price. This implies a fair value for the shares of around £12.43 — more than double where it trades today.
Share prices can converge to their fair value over time. So this price-value gap suggests a potentially superb buying opportunity to consider today if those DCF assumptions hold.
Supported by strong earnings growth?
Profit growth ultimately powers any stock price higher over time. A risk here for Aviva is that a sharp fall in financial markets could reduce the value of its investment portfolio and weaken its capital position. Another is that prolonged high inflation could increase its operating costs and reduce the profitability of its core insurance and savings businesses.
However, analysts forecast that Aviva’s earnings growth will average a strong 15% a year to end-2028. This looks conservative to me, given the firm’s outstanding 2025 results, released on 5 March.
These showed operating profit soaring 25% year on year to £2.2bn, achieving the £2bn+ target one year early. Meanwhile, operating earnings per share jumped 17% to 56p. Given these excellent figures, management announced a £350m buyback, which tends to support share price gains.
My investment view
I believe Aviva is a fundamentally much stronger business than its valuation implies. The transformation of the group is clear in both its financial delivery and its forward earnings power. Yet the market continues to price it as if little has changed.
For long‑term investors seeking major capital appreciation potential, I think that disconnect could be highly attractive. And I will certainly be adding to my existing £20,000 holding very shortly.
In the meantime, other high-yielding, undervalued FTSE stocks have also caught my eye.
