Buy or hold? Top broker rates these 2 ASX 200 shares

One player stands out more than the other.

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ASX 200 shares have hit turbulence midway through the year. The benchmark S&P/ASX 200 Index (ASX: XJO) has slipped nearly half a per cent into the red this past month.

Medibank Private Ltd (ASX: MPL) and NIB Holdings Ltd (ASX: NHF) are two companies on the coverage list for investment bank Goldman Sachs. The broker recently completed a head-to-head comparison of both ASX 200 shares.

With both shares in the spotlight recently, should you buy, hold, or sell? Here's what Goldman Sachs thinks.

Broker neutral on this ASX 200 share

Medibank shares have climbed almost 5% in the past six months. Goldman Sachs, however, sees limited upside from here.

The broker reaffirmed its neutral rating and a price target of $3.70 in a recent note. It rated the insurer a hold due to its "relatively weaker policyholder growth" versus competitors, its valuation, and "some risk related to cyber security legal cases and investigations".

It added:

Key downside risks include: 1) Lower approved premium rate increases impacting margins, 2) Slower than expected resident policyholder growth, 3) Impact of cyber security legal case and associated costs, 4) Return of claims inflation through normalizing utilisation and broader catchup on claims.

Despite this, the broker likes the ASX 200 insurance share's defensive earnings and favourable operating conditions. It also is positive on the "manageable claims environment and strong recovery in non-resident volumes", the note says.

Medibank shares are down 0.27%, trading at $3.71 at the time of publication.

NIB Holdings: The preferred pick

Goldman Sachs prefers NIB Holdings, its analysis says. It rates the ASX 200 share a buy with a price target of $8.10 per share, suggesting around 8.5% return potential over the next 12 months. Including projected dividends, this increases to around 13.5% total return.

The broker said it was bullish on NIB given five key tailwinds that could see the business grow in FY 2025. One of these includes the exposure to Australia's private health insurance sector, currently experiencing "favourable operating trends", it noted.

We currently have a preference for NHF in this space reflecting strong underlying top line growth through policyholder growth and premium rate increases, greater diversity of earnings outside of regulated resident health insurance and valuation appeal.

Analysts also mentioned that NIB has improved its reserve position compared to the pandemic era, and that rate increases of 4.1% this year can "fund claims inflation of perhaps 3.6%". This, it says, can offset a slowdown in premium volumes and provide a buffer to operating margins.

It also mentioned that NIB's policyholder growth "has been better than industry".

When comparing the two companies head-to-head, Goldman stated it liked NIB, given "MPL's relatively weaker policyholder growth."

Foolish takeaway

Goldman Sachs has a split view on these ASX 200 shares. On one hand, Medibank's current valuation suggests holding rather than buying. In contrast, Goldman says NIB Holdings, with its growth prospects and attractive valuation, stands out as a top buy.

Motley Fool contributor Zach Bristow 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 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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