The QBE Insurance Group Ltd (ASX: QBE) share price came under pressure on Friday following the release of the insurance giant's half year results.
The ASX 200 blue chip stock ended the day almost 2% lower at $16.05.
One leading broker that sees this pullback as a buying opportunity is Goldman Sachs.
In fact, investors buying shares at current levels could be destined to generate big returns over the next 12 months if the broker is on the money with its recommendation.
What is Goldman saying about this ASX 200 blue chip stock?
According to a note this morning, Goldman has described QBE's half year results as "noisy" but retains its positive view on the company's outlook. It explains:
Stock view post 1H24 result: 1) Noisy 1H24 result for QBE but on balance remain positive on underlying trends. 2) While rate cycle is moderating, rates remains adequate with QBE's remediation program to benefit FY25/FY26 COR. 3) Management appears to have concluded restructuring / portfolio optimisation initiatives and refocusing on future growth. 4) Valuation ~9.5x 1 year forward.
Big potential returns for investors
Goldman sees potential for market-beating returns from the ASX 200 blue chip stock at current levels.
The note reveals that it has responded to QBE's results by retaining its buy rating with a trimmed price target of $20.00 (from $21.00).
Based on its current share price of $16.05, this implies potential upside of approximately 25% for investors.
But the returns won't necessarily stop there. That's because Goldman is predicting some above-average (and growing) dividend yields from its shares in the coming years.
For example, based on current exchange rates, it is forecasting dividend yields of 5.1% in FY 2024, 5.4% in FY 2025, and then 5.7% in FY 2026.
This boosts the total potential 12-month return to approximately 30%, which is triple the historical annual market return.
Goldman thinks that this is possible due to its undemanding valuation, rate increases, and its improving profitability in North America. It concludes:
QBE is a global commercial insurer with three main geographical operations across Australia Pacific, International (encompassing Europe) and North America. We are Buy-rated on QBE because 1) QBE underlying trends look very positive 2) QBE's achieved rate increases continue to be ahead of loss cost inflation and rate adequate. 3) North America on a pathway to improved profitability. 4) Valuation not demanding. 5) Strong ROE.
