Why this broker sees the IAG (ASX:IAG) share price gaining 12%

The IAG share price could be good value according to one broker…

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The Insurance Australia Group Ltd (ASX: IAG) share price has been underperforming this year.

Since the start of the year, the insurance giant’s shares have risen 7%.

This compares to a gain of almost 11% for the S&P/ASX 200 Index (ASX: XJO) over the same period.

Is the IAG share price good value?

One leading broker that sees value in the IAG share price at the current level is Morgans.

According to a recent note, the broker has an add rating and $5.65 price target on the company’s shares.

Based on the current IAG share price of $5.05, this implies potential upside of 12% over the next 12 months before dividends.

Morgans is also estimating that the company will reward shareholders with a 23.6 cents per share fully franked dividend in FY 2022. If we add this into the equation, this brings the potential return on offer to approximately 16.5%.

What did the broker say?

Morgans acknowledges that FY 2021 was a difficult year for the insurance giant.

In case you missed it, IAG reported a massive net loss of $414 million in FY 2021. This was driven by one-offs relating to business interruption insurance and customer refunds.

However, the broker feels optimistic that IAG is turning a corner and that FY 2022 will be better. This is due to its belief that a combination of price increases and the company’s strategy will underpin improved profitability.

Morgans commented: “IAG clearly had a difficult FY21. However, from here we believe insurance price increases combined with management’s strategy to improve underwriting and lower costs should drive improved profitability. With the stock trading close to 7 year lows, we see relative value in the name and maintain our ADD call.”

All in all, the broker believes this means the IAG share price is trading at an attractive level for investors right now.

Should you invest $1,000 in IAG right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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