5 reasons to buy NIB shares in October

This private health insurer could be a good option this month according to Goldman Sachs.

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NIB Holdings Limited (ASX: NHF) shares are rising on Friday.

At the time of writing, the private health insurer's shares are up 0.5% to $7.56.

Can NIB shares rise further?

The good news for investors is that there could still be plenty more upside ahead for the company's shares according to analysts at Goldman Sachs.

A recent note reveals that its analysts have a buy rating and $8.75 price target on NIB's shares.

Based on its current share price, this implies potential upside of approximately 16% over the next 12 months.

In addition, the broker is forecasting a fully franked dividend of 31 cents per share in FY 2024. This equates to an attractive 4.1% dividend yield, which boosts the total potential return to approximately 20%.

5 reasons to buy

But why is Goldman so positive and tipping such big gains? Well, there are five key reasons for its bullish view on the private health insurer.

These include its defensive qualities and the favourable claims environment. It outlines its reasons as follows:

We are Buy-rated on NHF given: 1) it offers defensive exposure to the private health insurance sector which is experiencing favourable operating trends, 2) claims environment remains low with no immediate indications of a bounce back in claims, 3) DCL provisions to cover a bounce back in claims are proving redundant, 4) significant policyholder give back incentives suggest claiming environment remains well below expectations, 5) strong recovery in non-resident volume post Covid-19 through the return of international students, workers and visitor arrivals. We currently have a preference for NHF in this space reflecting strong underlying top line growth through policyholder growth and premium rate increases, shareholder-friendly interpretation to not profit from Covid-19, while offering greater diversity of earnings outside of regulated resident health insurance.

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 positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has recommended NIB Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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