Can Medibank shares expect a healthy FY25?

It was a challenging period last financial year for the insurer.

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Medibank Private Ltd (ASX: MPL) shares had a volatile FY24. The stock began the financial year at $3.52 and ended at $3.73, resulting in a 6% gain for the period.

But investors saw their Medibank shares trade as high as $3.91 in March before sliding to six-month lows of $3.41 by May. Quite the range.

After a year of turbulence – both in the markets and in the business – investors are curious whether FY25 will bring any significant changes. Let's review last year's performance and the outlook for the upcoming year for Medibank shares.

Medibank shares FY24 recap

Owning Medibank shares in FY24 was a turbulent affair. Even though its financials were reasonably strong, it still had to deal with regulatory scrutiny following the 2022 cyberattack.

Medibank reported a revenue increase of 3.3% to $4.02 billion in its H1 FY24 results in February. The company also saw a 104.8% rise in net profit after tax (NPAT), reaching $491.9 million.

Although, as my colleague Mitch reported, around $81 million of this result stemmed from accounting changes that were related to COVID-19 claims.

Management also declared an interim fully franked dividend of 7.2 cents per share, up 14.3% from the previous period.

Impact of the 2022 cyberattack on Medibank shares

It's worth highlighting that the 2022 cyberattack had lingering effects on Medibank shares even in FY24. As a reminder, the breach reportedly exposed sensitive customer information, including personal and health data.

Consequently, the Australian Information Commissioner (OAIC) has commenced civil penalty proceedings, alleging Medibank failed to protect customer data adequately. The potential fines – though speculative – continue to loom over the company.

FY25 outlook: Opportunities and challenges

UBS sees potential in Medibank shares for FY25. According to my colleague Tristan, the broker noted that Medibank's claims inflation was better than expected at 2%, compared to the 2.6% guidance.

UBS forecasts the private health insurance margin will remain above 8% from FY24 to FY26. Although Medibank's policy numbers fell slightly, analysts remain optimistic about a rebound with projected growth of 0.9% and projected dividends of 18 cents per share this year.

Goldman Sachs meanwhile maintains a neutral rating on Medibank shares, with a price target of $3.70.

The broker appreciates Medibank's defensive earnings and manageable claims environment. But, due to the current valuation, it has "a preference" for alternatives like NIB Holdings Limited (ASX: NHF), which it believes offers better growth prospects.

Foolish takeaway

Medibank shares were relatively flat in FY24, but the outlook for FY25 could bring opportunities, some experts note.

Investors should keep an eye on the company's ability to manage costs, grow its policy base, and navigate ongoing legal challenges. In any situation, remember to consider personal risk tolerances and conduct your own due diligence.

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 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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