Insights

These top brokers weigh in on the IAG (ASX:IAG) share price

The experts have afforded their opinion on the outlook for IAG investors.
The post These top brokers weigh in on the IAG (ASX:IAG) share price appeared first on The Motley Fool Australia. –

Oh, what a ride it has been for Insurance Australia Group Ltd (ASX: IAG) over the past month or so.

Its share price chart looks as if it was drawn by a four year old trying to colour between the lines when zooming out and scoping out the last few weeks.

IAG shares have come off a high of $5.35 since mid-October, after first regaining some steam in the first half of the month.

Now, the IAG share price is swimming in a sea of red across all time frames from today up until 12 months of negative returns.

What’s led us to this point?

IAG the company has been marred by a series of controversies that in all fairness have been drawn out over the last three years.

Central to the IAG’s share price downfall in recent times is a set of shock weather events, in the form of severe storms and hail activity, that will hurt its earnings potential for FY22.

These events, which have caused widespread damage in South Australia and Victoria late last month, will go on to have a direct impact on IAG’s net natural peril costs for FY22, according to the company.

Despite a robust quarterly update, where IAG shone in its performance, the company then had to bump up its claim cost estimates by almost 36% to $1.045 billion from $765 million following the freak weather.

Consequently, the insurance giant now forecasts an FY22 reported insurance margin of 10% to 12% – a significant down-step from previous guidance of 13.5% to 15.5%.

News of the downgraded guidance sent IAG shares plummeting towards the floor in an almost vertical fashion after it had already perished another 4% from other controversies.

The IAG share price has shown no signs of recovering and is currently down a further 13% since the guidance update.

What do brokers have to say about IAG shares?

With all of this activity surrounding the insurance giant, the analyst teams of several leading brokers have chimed in with their outlook on IAG’s share price.

Analysts at Morgans are adamant that IAG shares look cheap with this recent pullback, and believe there are gains to be made ‘for the patient investor’.

Whilst the broker trimmed its price target by 5% to $5.36 on IAG shares, it maintained its add recommendation in a recent note, as it expects insurance premiums and a profitability boost beyond FY22 for the insurer.

The team at fellow broker Credit Suisse hold the same mantra, also cutting its price target by 5% to $5.60, but maintaining its outperform rating on the share.

It reckons that IAG will certainly absorb the net peril cost increase in FY22, but likes the share’s current valuation and also the current cycle we are in with interest rates.

Meanwhile, Morgan Stanley doesn’t hold as rosy of an outlook for IAG investors.

The broker notes that “over the past 10 years, IAG has tilted its business model towards short-trail lines, which tend to be more catastrophe risk prone”.

It reckons these challenges will add pressure to IAG’s reinsurance renewals, which could bode in poorly for its share price.

This is compounded by an expected La Nina summer, it says. Therefore, Morgan Stanley expects further downgrades for the company.

Fellow broker UBS also agrees, retaining its neutral rating on the company in a recent note. It sees “downside risk to earnings, given limited sideways reinsurance cover remaining” if perils activity remains high.

IAG’s downgrade was far worse than the broker was expecting, and is cautious on regulatory proceedings the company is currently embroiled in.

Collectively, the opinion appears to be balanced amongst this group of brokers, with 50% advocating IAG could be a good buy, whereas the rest feel there are too many risks embedded into the investment debate.

IAG shares have slumped 7.5% into the red in the last 12 months after sliding a further 5.5% this year to date.

The post These top brokers weigh in on the IAG (ASX:IAG) share price appeared first on The Motley Fool Australia.

Should you invest $1,000 in Insurance Australia Group right now?

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More reading

Why Bubs, Dalrymple Bay, IAG, and Redbubble shares are dropping

Top brokers name 3 ASX shares to buy today

Why Ingenia, IAG, Vulcan, and Westpac shares are dropping

ASX 200 (ASX:XJO) midday update: Netwealth’s merger proposal, IAG sinks

IAG (ASX:IAG) share price sinks 6% on guidance downgrade

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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