Should you buy Suncorp Group Ltd (ASX:SUN) shares?

On Thursday insurance and regional banking giant Suncorp Group Ltd (ASX: SUN) released a strong full-year result to the delight of its shareholders.

This led to its shares rising almost 6.5% to a 52-week high before closing the day around 5% higher at $15.70.

Should you buy Suncorp shares?

I thought that Suncorp’s result was surprisingly strong and saw positives across its entire business.

In light of this, I feel it could be worth a closer look ahead of industry peers Insurance Australia Group Ltd (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE).

I’m not the only one that thinks this. A note out of Goldman Sachs this morning reveals that its analysts have retained their buy rating and lifted the price target on its shares from $15.24 to $16.05.

According to the note, the broker was pleased to see Suncorp deliver cash earnings of $1,098 million in FY 2018, well ahead of its estimate of $1,046 million and the market’s expectation of $1,036 million.

Also beating expectations was its final dividend of 40 cents per share. Goldman was only expecting a dividend of 37 cents per share in the second-half.

Although the broker notes that the strong result was driven partly by lower quality items including favourable weather and reserve releases, it feels the underlying momentum within its insurance business was solid.

Because of this the broker has lifted its earnings forecasts for FY 2019 and FY 2020 by 3.2% and 2.8%, respectively.

In FY 2019 Goldman expects Suncorp to achieve earnings per share of $1.03 and in FY 2020 it expects earnings per share of $1.09.

With the broker expecting Suncorp to operate with a payout ratio of approximately 82.5% for both these years, it has forecast dividends of 85 cents per share and 90 cents per share for the next two years.

This means that Suncorp’s shares are currently changing hands at 15x forward earnings and provide a forward fully franked 5.4% yield, making it a tempting option for income investors in my opinion.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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