Here’s why Morgans tips another 10% upside for the IAG (ASX:IAG) share price

The experts have weighed in on the investment debate.

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The Insurance Australia Group Ltd (ASX: IAG) share price is trading lower today, currently 1.17% in the red at $5.05.

IAG shareholders have endured a turbulent ride lately with the insurance giant’s share price trading in an 11.5% spread of $4.80 to $5.35 this past month.

What’s been fuelling the IAG share price lately?

The IAG share price spiked last week after the company released a trading update at its annual general meeting (AGM).

In its report, IAG explained it had a nice thrust to commence FY22 and is well on track to reach its previously outlined guidance.

This includes reported insurance margin forecasts of 13.5% to 15.5%, helped by “lower motor vehicle claims frequency, driven by the lockdowns in Australia and New Zealand”.

Prior to this, IAG shares were punished from 11 October on the back of what seems to be a Federal Court ruling in favour of the company in a “business interruption test case” that was related to COVID-19 lockdown business claims.

The second test case – held after a court previously ruled in favour of the claimants – actually reversed the overall decision and found in favour of the insurers in 8 out of 9 matters.

Interestingly, the IAG share price cratered 9% in the week following the court’s decision. Perhaps investors were seeking a more equitable outcome for claimants who pay IAG insurance premiums for cover in certain events.

Can IAG turn it around?

Analysts at leading broker Morgans tend to think so. The broker reckons that, although it was a challenging FY21 for IAG, it is better positioned to capture profits in FY22.

It labelled the insurance giant’s trading update as “broadly positive”, especially as all guidance figures were confirmed.

Insurance price increases, the firm’s strategy to lower costs and improve underwriting are key catalysts to drive this movement, Morgans says.

Despite a lacklustre performance on IAG’s price chart, where it remains bottom-heavy and hovering around all-time lows, the brokers reckon there is still value to be sourced from IAG.

Consequently, Morgans reiterated its add rating, however, trimmed its price target by 0.2% to $5.64.

At the current market price, this implies an upside potential of just over 10%.

IAG shares have struggled this year to date, marred by controversy and regulatory headwinds. It has only climbed 8% since January 1 and under 5% in the last 12 months.

This is well behind the S&P/ASX 200 Index (ASX: XJO)’s gain of around 20% in the last year.

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The author Zach Bristow has no positions 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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