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Is the Aviva share price a FTSE 100 bargain or a value trap?

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There are plenty of bona fide bargains strewn across the FTSE 100 index that can be picked up today. And going by the numbers alone, Aviva (LSE: AV) would be considered by some as falling into that category.

Thanks to City predictions of a 63% profits rise in 2018, the insurance giant carries a forward P/E of 9.4 times, inside the accepted bargain territory of 10 times or below. And what’s more, this stunning earnings projection also results in a corresponding sub-1 PEG reading of 0.1.

But is Aviva a genuine value star or a simple value trap waiting to trip you up?

Profits pounding higher

The Square Mile’s many analysts do not expect this year’s predicted rise to be the end of the matter and they are anticipating another 7% profits rise in 2019.

It’s easy to see why the experts are predicting sustained profit progression at Aviva. Last year the company’s market share grab in its core UK market helped revenues to keep driving through the roof. And the long-term structural opportunities created by solid economic growth, a rapidly-ageing population, and changing regulatory requirements provide plenty of scope for profits to keep rising.

These factors are not confined to its home marketplace either. Indeed, Aviva reported that profits leapt by double-digit percentages across three-quarters of its eight major territories in 2017.

What’s more, I am also pretty excited over the war chest it has for earnings-boosting M&A action in the near term and beyond. Indeed, it has recently earmarked £500m (which includes the £100m dedicated to the takeover of Ireland’s Friends First) for the pursuit of bolt-on acquisitions in its white-hot geographies.

Stunning yields

Arguably Aviva’s strongest pull is the promise of monster dividend yields, however.

The Footsie firm has almost doubled dividends over the past five years and brokers are predicting extra growth in the medium term at least. Last year’s 27.4p per share reward is anticipated to leap again to 29p in 2018, and then to 32.4p next year.

As a consequence, yields clock in at an eye-popping 5.4% and 6% for 2018 and 2019 respectively.

Indeed, with Aviva throwing up so much cash, it is also rewarding its shareholders by embarking on a massive share buyback scheme. The company plans to buy a maximum of £600m worth of shares and launched the operation at the turn of the month.

Now Aviva isn’t without its share of risk, of course. As my fellow Foolish writer Rupert Hargreaves pointed out recently, the firm almost followed the dinosaurs into extinction when the last financial crisis hit. And there are many signals flashing in the global economy that, despite the huge restructuring that has taken place since then, would unquestionably see the insurer come under huge strain yet again.

Having said that, I reckon these factors are more than baked into the FTSE 100 giant’s dirt-cheap earnings multiple. In my opinion it is a terrific blue-chip to buy today.

Buy-And-Hold Investing

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.