The Insurance Australia Group Ltd (ASX: IAG) share price was on form on Wednesday.
The insurance giant's shares ended the day almost 3% higher at $4.48.
However, despite this gain, the IAG share price is still down a disappointing 5% in 2021.
Is the IAG share price in the buy zone?
While the IAG share price performance this year has been disappointing, analysts at Morgans appear to believe this could be a buying opportunity.
In response to the company's strategy update this week, the broker has put an add rating and $5.31 price target on its shares.
Based on the current IAG share price, this implies potential upside of 18.5% over the next 12 months. And with Morgans forecasting an 18.2 cents per share dividend in FY 2022, this 4% yield stretches the total potential return to 22.5%.
What did the broker say?
Morgans appears pleased that IAG held firm with its medium term targets at its strategy event.
The broker commented: "IAG has held a business update focusing on its 5 year strategy. Medium term targets remain unchanged, e.g. targeting a cash ROE of 12%-13%, an insurance margin of 15%-17% and a growth profile. IAG's FY22 guidance for a 10%-12% reported insurance margin and low single-digit GWP growth was also re-affirmed."
And while Morgans has a few nagging doubts, it was largely pleased with its strategy.
It explained: "IAG's overall strategy sounds logical, although history shows it is one thing improving margins in IIA and another thing being able to maintain them. We are probably most sceptical on whether IAG can grow customer numbers by 1m over 5 years as planned, noting IAG has been losing share in personal lines in recent times. However, positively, it does appear that IAG has already made a significant start on executing its plans in FY22."
Overall, the broker believes the IAG share price is cheap for patient investors.
Morgans concluded: "We believe for the patient investor the stock is cheap trading on ~13x FY23F earnings, and we expect continuing insurance price increases, combined with management's strategy to improve performance, to drive improved profitability over time. ADD maintained."
