Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Aviva (LSE: AV) (NYSE: AV.US) to ascertain if its share price can return to 1,119p.
Initial catalyst
However, before I can make a decision as to whether or not Aviva can return to its all-time high, I need to find out what caused Aviva’s shares to reach this level in the first place.
It would appear that Aviva’s shares reached this all-time high during the first few months of 2000, when Aviva, then known as CGNU, merged with the Norwich Union. This merger made the company the fifth biggest insurer in Europe. That begin said, for full-year 2000 Aviva reported a loss per share of 77p, as a number of charges relating to the company’s sale of non-core businesses hit the bottom line.
Unfortunately, despite the company fortunes improving over the next few years, Aviva’s share price slid from away from its all-time high amid a broader FTSE 100 decline when the technology bubble burst.
But can Aviva return to its former glory?
Since 2000, things have changed significantly for Aviva. In particular, perhaps one of the most pressing issues now facing the company and its management, is the fact that Aviva has lost the trust of shareholders.
Indeed, after multiple dividend cuts during the past decade, missed targets and erratic earnings, Aviva has a lot of work to do before investors regain faith in the company.Nevertheless, Aviva’s management is now in damage control mode and the company is slashing costs as well as shedding business to try and return to growth.
Furthermore, Aviva made a loss during 2012 and the company is going to have to return to profit quickly to justify a higher share price. Actually, the company would have to earn nearly 50p per share and trade at a similar valuation to the wider life insurance sector to justify a return to 1,119p.
More importantly Aviva would have to rebuild trust with investors in order to trade at a similar valuation to its peers.
Foolish summary
All in all, Aviva has made numerous mistakes during the past decade and the company has a lot of work to do before it can stage a new assault on its all-time high.
So overall, I feel that Aviva cannot return to 1,119p.
