The share price of Medibank Private Ltd (ASX: MPL) has hit a new all-time high this month of $2.86 and closed trade on Thursday at $2.79.
The rally in the private health insurer's share price marks a stunning turnaround after the stock slumped all the way back to its float price of $2 in August 2015.
For many shareholders the question being pondered now will be whether to take profits or continue holding.
It's definitely a question that shareholders should be asking themselves. While there are a number of positive reasons for viewing Medibank Private as a core long-term holding, these positives need to be weighed up against the question of value which could suggest it's time to exit.
3 positives
- Premium changes approved – Just last week the Federal Minister for Health announced that Medibank had received approval to increase its private health insurance premiums by an average of 5.64% across all of its products.
- Multiple growth drivers – With a market-leading position, Medibank is ideally placed to benefit from the tailwind of population growth, premium rate rises, the ability to leverage its scale to drive operational efficiencies and to minimise cost inflation.
- Attractive dividend – The board is targeting a full year target pay out rate of between 70% and 75%. Having paid a fully franked interim dividend of 5 cents per share, one analyst consensus is expecting a final dividend of 9.2 cps which implies a yield of 5.1%. (Source: Thomson Consensus Estimates)
One possible negative
With consensus data forecasting earnings per share this financial year of 14.2 cps, Medibank is trading on a price-to-earnings ratio of about 20 times. That is arguably above fair value for an insurance stock which is unlikely to grow earnings at a rate above the market average.
