Shares of Medibank Private Ltd (ASX: MPL) have come under considerable selling pressure recently, having dropped nearly 16% from an all-time high of $2.59 in February to hit a fresh 2015 low of $2.18 on Thursday. The problem is, the stock could still have further to fall.
As reported by the Fairfax press, UBS has given the stock a "sell" recommendation and hit it with a $2 price target. Fairfax quoted UBS as saying, "Our 'sell' rating reflects our view that the share's post-IPO performance appears to have captured virtually every positive theme but no negative ones."
Unfortunately, that certainly seems to be the case. Medibank Private's initial public offering (IPO) was one of Australia's most highly anticipated public floats in living memory. Given its status as a government-owned business, investors expected it to follow the likes of Commonwealth Bank of Australia (ASX: CBA) or CSL Limited (ASX: CSL) in generating enormous shareholder returns once it went public.
While there is no questioning the quality of Medibank's business, it appears that investors may have gotten a little ahead of themselves. At the time of the IPO, many analysts were sceptical of the insurer's ability to reduce costs and improve efficiencies, while others were cautious of its limited growth potential once those cost and efficiency improvements were realised.
It appears that investors could now also be questioning its ability to generate market-beating returns, especially considering its dividend yield is nowhere near as attractive as other blue-chip stocks, including those offered by the Big Four banks, Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW).
Medibank Private is a stock that investors should consider having in their portfolio, but only at the right price. From its current price, investors would be wise to add it to their long-term watchlist and instead focus their attention on some of the market's more appealing investment prospects.
