On Wednesday, Goldman Sachs (NYSE:GS) initiated coverage on Aviva PLC (LSE:LON:AV), listing the stock with a Buy rating and setting a price target of GBP5.72. The firm highlighted the insurance company's potential for earnings growth and business mix improvement that it believes is currently undervalued by the market.
According to the financial institution, Aviva is poised for a positive shift in perception among investors, who may soon recognize the company as a diversified multi-line insurer rather than primarily a UK life insurance provider. This anticipated change is expected to lead to an expansion of the company's valuation multiples.
Goldman Sachs projects a total return yield of approximately 11% by 2026 for Aviva, with dividends per share (DPS) growing at an annual rate of 7.5% from 2024 to 2026. The firm's outlook is notably more optimistic than the consensus, with operating profit estimates for 2025 and 2026 that are 7-10% higher than the average market expectations.
The analyst from Goldman Sachs commented on the company's prospects, stating, "Aviva has underappreciated earnings tailwinds and business mix improvement, in our view. It provides a c.11% 2026e total return yield with DPS 2024e-2026e growing at 7.5%, and we expect it to be viewed more as a multi-line (vs. a UK life) going forward which argues for multiple expansion. We are 7-10% above 2025e and 2026e consensus operating profit expectations."
This new coverage and optimistic outlook from Goldman Sachs could influence investor sentiment towards Aviva, as the market digests this information and considers the company's potential for growth and re-rating in the coming years.
InvestingPro Insights
As Goldman Sachs initiates coverage on Aviva PLC with a promising outlook, current data from InvestingPro aligns with the firm's positive assessment. Aviva's market capitalization stands at a robust $17.29 billion, reflecting its significant presence in the insurance industry. The company's price-to-earnings (P/E) ratio is currently at an attractive 10.54, suggesting that the stock may be undervalued relative to its earnings potential. Furthermore, the P/E ratio adjusted for the last twelve months as of Q2 2024 is even lower at 9.47, reinforcing the notion of a potentially undervalued stock.
InvestingPro Tips reveal that analysts are expecting sales growth in the current year, which supports Goldman Sachs' projection of earnings growth. Additionally, Aviva has been consistent in returning value to shareholders, maintaining dividend payments for 33 consecutive years, with a notable dividend yield of 4.33% as of late 2024. The company's strong track record of profitability is also evident, with a positive performance over the last twelve months.
For investors seeking more in-depth analysis and additional InvestingPro Tips, there are further insights available on the platform, including Aviva's liquidity position and its performance relative to its 52-week high. The company is trading near this peak, indicating market confidence. To explore these insights and more, interested investors can visit https://www.investing.com/pro/AVVIY for a comprehensive analysis.
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