The Insurance Australia Group Ltd (ASX: IAG) share price has been out of form again in 2021.
Since the start of the year, the insurance giant's shares have fallen approximately 10%.
This means the IAG share price is now down 45% over the last two years.
Is the IAG share price cheap?
While the IAG share price performance over the last couple of years has been disappointing for shareholders, it could be a buying opportunity for non-shareholders.
According to analysts at Morgans, its analysts have recently retained their add rating but trimmed their price target slightly to $5.31.
Based on the current IAG share price of $4.27, this implies potential upside of 24% over the next 12 months.
In addition, the broker expects an 18.2 cents per share dividend in FY 2022. If we add this into the equation, the total return stretches to approximately 18.5%.
What did the broker say?
Morgans notes that IAG recently held a business update focusing on its five-year strategy.
It highlights that the company's medium term targets remain unchanged. It continues to target a cash return on equity of 12% to 13%, an insurance margin of 15% to 17%, and a growth profile. The broker also notes that IAG's FY 2022 guidance for a 10% to 12% reported insurance margin and low single-digit gross written premium (GWP) growth was also re-affirmed.
Morgans commented: "IAG's overall strategy sounds logical, although history shows it is one thing improving margins in IIA [Intermediated Insurance Australia] 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."
Its analysts also believe the IAG share price is cheap at the current level and expects patient investors to be rewarded.
The broker concluded: "We leave our earnings/valuation unchanged. IAG had a difficult FY21 and FY22 is set to be a weather affected year. However, 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."
