Despite its shares climbing by almost 18% since mid-February, I still believe that QBE Insurance Group Ltd (ASX: QBE) continues to be a great buy today, and could offer shareholders potentially significant share price gains in the next 12 months.
The jump in its share price was the result of a better-than-expected full year report. Although revenue and net income were down 9% and 7% year over year, respectively, many had been expecting far worse considering the headwinds it continues to face from low interest rates.
There were positives also in cost savings from its transformational program. The company reported that it has now brought its total run-rate savings to almost US$400 million. I feel these savings should go some way to increasing the company's long-term profitability.
I have always been a fan of the fact the company has a diverse business with operations all over the world. As there isn't one particular geographical location that contributes more than a third of total gross earned premiums, I feel it makes for a balanced business model.
Analysts appear to be bullish on the company, with the consensus estimate for full year earnings this fiscal year coming in significantly higher at 87.3 cents per share, compared to the 73.7 cents per share for fiscal 2015. This equates to a year-over-year increase of over 18%, and means the shares trade on an estimated forward price-to-earnings ratio of just 12.8.
This is a discount to competitors Insurance Australia Group Ltd (ASX: IAG), NIB Holdings Limited (ASX: NHF), and Suncorp Group Ltd (ASX: SUN), which trade at estimated forward price-to-earnings ratios of 14.3, 20.5, and 13.8, respectively.
With the shares still trading some distance from their 52-week high of $15, there certainly is room for a lot of share price growth should the company achieve what the market is expecting of it. When you factor in the estimated dividend of 66.8 cents per share, this becomes an incredibly tempting investment.
Investment in insurance companies is not without risk. Catastrophic events can significantly impact the overall profitability of an insurer, which could in turn lead to share price declines. Unfortunately, these events are not something we can forecast, and as such we have to trust that management has suitable reinsurance in place to manage this risk.
Foolish takeaway
At the price the shares are trading at presently, I feel QBE Insurance would still be a great buy despite the recent jump in its share price. Barring any catastrophic events I feel we might see strong share price gains from the insurer in the next two years.
