Are AMP shares a cheap buy following a broker upgrade?

Is this financial stock cheap enough yet?

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AMP Limited (ASX: AMP) shares got a boost today after a broker raised the rating on the ASX financial share.

At the time of writing, AMP shares are trading for 91 cents a piece, the same as Friday's closing price.

Shareholders have had a difficult year in 2023 to date. The AMP share price is down by 30%, as we can see on the chart below.

Let's look at what's provided some optimism today.

Broker upgrade

According to reporting by The Australian, the broker Barrenjoey has raised its rating on AMP to neutral, with a price target of 96 cents.

That's not exactly the most bullish rating but from the current AMP share price, we're talking about a possible rise of 5.5% over the next year.

As a reminder, a price target is what valuation the broker thinks the share price will get to in 12 months.

Of course, a price target is a forecast by the broker; it's not a guarantee.

What is the earnings valuation?

Investors often like to value and judge a company based on its profit generation and expectations of what way its earnings are going.

On Commsec, the projection is that AMP could generate earnings per share (EPS) of 6.3 cents in FY23, 7 cents of EPS in FY24, and 8.6 cents in FY25.

What this shows is that analysts are expecting AMP's (underlying) profit to consistently improve over the next few financial years.

At the current AMP share price, it's valued at 14 times FY23's estimated earnings, 13 times FY24's estimated earnings, and under 11 times FY25's estimated earnings.

Pleasingly, the AMP dividend is expected to grow to 4.7 cents per share in FY23, 4.9 cents per share in FY24, and 5.5 cents in FY25. That means it could pay a partially franked dividend yield of 6% in FY25.

Are these metrics attractive enough for investors to dive in? While Barrenjoey has upgraded its rating, it's still neutral on the business, not rating the share a buy. There may be other ASX shares that are capable of producing stronger capital growth over the long term, though the AMP dividend could provide solid cash returns over the next three years according to the projections.

Motley Fool contributor Tristan Harrison has no position 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 has no position in any of the stocks mentioned. 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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