Aviva plc Earnings Set To Soar By 117%!

When it comes to forecasting company profits, the insurance sector can be tricky — though life insurance, at least, is not open to quite the same risks from natural disasters. But the whole sector has been through a tough patch, though there are some impressive forecasts out there now.

Just look at Aviva (LSE: AV) (NYSE: AV.US), which had a torrid time during the credit crunch and was forced to slash its dividend.

Back to growth

The firm is already back to earnings growth, and for the year to December 2014 the City’s analysts are forecasting a massive 117% rise in earnings per share (EPS) to 48p.

There’s a 10% hike in the dividend predicted too, from last year’s low of 15p per share to 16.6p. On today’s share price of 508p that would provide a yield of 3.3%, which is way down from the pre-cut levels — but it would still be respectable and, more importantly, well-covered and sustainable.

There’s a modest improvement on top of that penciled in for 2015, with EPS predicted to be up another 9% and with the dividend yield inching up to 3.7%.

Close consensus

The consensus of forecasts looks tight, too, with most individual estimates sticking pretty close to the median — for some companies, we often see a very wide range in individual prognostications, which does make me wonder where some of them get their figures from.

Actual recommendations are looking pretty bullish — out of 21 analysts and brokers, 11 have posted a Strong Buy (or equivalent) recommendation. Against that, however, the four bearish commentators are sticking with Strong Sell, while six are sitting on Hold.

AvivaConsistency, too

Looking back over the past 12 months, there has been very little variation in the consensus forecasts — the EPS forecast is up less than a penny, from 46.8p a year ago to 47.7p today, with the dividend forecast dropping a little, from 17.8p per share back then to 16.6p now.

The brokers seem to think that the worst is over for Aviva now, and the investing public does seem to be convinced by the current set of forecasts — they have pushed the share price up 65% over the past year!

Still a bargain?

But even after a gain like that, the shares still aren’t looking expensive to me — those forecasts would give us a forward P/E for this year of under 11, dropping to under 10 for 2015, and that’s way below the long-term FTSE average of around 14.

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Alan does not own any shares in Aviva.