Broker tips big gains and yields from NIB shares

Goldman Sachs is saying good things about this health insurance provider.

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NIB Holdings Limited (ASX: NHF) shares are ending the week on a positive note.

In late morning trade, the health insurance company's shares are up 0.5% to $7.59.

This latest gain means that its shares are now up over 6% since this time last year.

This compares favourably to a 2.5% decline by the ASX 200 index over the same period.

Can NIB shares keep rising?

Analysts at Goldman Sachs remain positive on the company and see scope for double-digit gains from current levels.

In response to quarterly data released by APRA, the broker has retained its buy rating and $8.40 price target on NIB's shares.

This implies a potential upside of 10.7% for investors over the next 12 months. In addition, the broker is forecasting a 3.8% dividend yield in FY 2024, boosting the total potential return to 14.5%.

It then expects dividend yields of 4.35% in FY 2025 and 4.6% in FY 2026.

What did the broker say?

Goldman believes that the data released by APRA supports is supportive of its positive view on NIB. It notes:

Relative to pre-Covid, we still think trends screen favourably for the health insurers across rate increases v benefit growth per insured life: Over the 12 mths to Sep-23 v pre Covid i.e. 12 mths to Sep-19, we still see positive jaws of underlying rate at an industry level over that period exceeding the growth in benefit per insured life. However, we do see strong benefit growth per insured life over 12 mth to Sep-23 v pcp (from a low base).

Why is it bullish?

Outside the above, there are a number of reasons why Goldman is bullish on NIB shares. The broker explains:

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.

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 positions in and 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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