MENU

Suncorp trucks on

Suncorp (ASX: SUN) shares have again opened firmer as investors try to grab a piece of the companies expected future success.

Up over 1.6% in early trading, Suncorp is the best performing insurance play when compared to its two closest rivals, QBE Insurance (ASX: QBE) and Insurance Australia Group (ASX: IAG). However, value investors may be becoming concerned the rising earnings ratio of the stock is pushing passed 23.

Investors should only use the P/E ratio as a very rough guide for valuing stocks, although they can be forward or current earnings estimates. Earnings per share (EPS) is a better way to gauge the growth of the company but even that can be wrong.

Looking at the numbers, including healthy balance sheets and fancy ratios only tell part of the story. Solid management, good products and a healthy long term upside need to be considered before buying a stock.

Based on current earnings, Suncorp has a PE of almost 23 but with Morningstar’s 2014 forecasted earnings, that will drop to around 12. In addition, Suncorp’s insurance brands which include GIO, AAMI, APIA, Suncorp, Vero and Shannons have good prospects and are led by well-equipped and experienced managers.

Since clearing out most of the ‘bad bank’ debt to Goldman Sachs, it seems Suncorp has finally recovered from the GFC and its balance sheet is starting to freshen up. Although the stock has risen almost 50% this year, it still remains a good long term investment.

Foolish takeaway

Punters hoping for a short-term kick in share price may be surprised when the annual report is released on 21 August. The sale of debt to Goldman will result in a net loss of around $490 million and will consume a large portion of the gains the company made in its first half to 31 December 2012. Paying a dividend of 4.3% fully franked, Suncorp ticks all the right boxes for many investors.

In the market for high-yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.