The Insurance Australia Group Ltd (ASX: IAG) share price has been a mixed performer in 2021
Since the start of the year, the insurance giant's shares have risen 5%.
This means the IAG share price is trailing the S&P/ASX 200 Index (ASX: XJO), which is up 11% year to date.
Is the IAG share price underperformance a buying opportunity?
The team at Goldman Sachs has been looking over IAG's preliminary full year result to see if there's an investment opportunity here.
At this point, its analysts are sitting on the fence and have retained their neutral rating and trimmed the price target on the insurance giant's shares to $5.41.
Based on the current IAG share price of $4.95, this implies potential upside of 9.3% over the next 12 months excluding dividends.
And with Goldman forecasting a partially franked 4.9% dividend yield in FY 2022, this will mean a total potential return of over 14%. Not too shabby for a neutral rating.
What did Goldman say?
Goldman Sachs appears to be concerned mainly by lingering reserve strengthening and its valuation in comparison to industry peer Suncorp Group Ltd (ASX: SUN).
It commented: "IAG's overriding message was that the management team have building confidence in the outlook, and to this end we didn't feel the market was expecting margin guidance to be reinstated, or scenarios where a result >15% was feasible. Nonetheless a third consecutive period impacted by reserve strengthening, alongside margin targets which still appear fairly one-dimensional in domestic commercial repricing aren't immediately enticing (given poor results to-date)."
"On balance, we downgrade our FY21-FY23 cash EPS by 2%/4%/2%, and as a result our 12m TP shifts to A$5.41 from A$5.66. This leaves IAG is trading at 18.3x our 12m fwd EPS, broadly in line with its five year average and c.3 PE points above SUN (if we adjust for SUN's FY22 one-off costs), also broadly in line with its five year average premium," it concluded.
Goldman currently has a buy rating and $12.87 price target on Suncorp shares.
