A little over a month ago the Fairfax press reported that, Toby Langley, an analyst from Bank of America Merrill Lynch, made the rather outlandish forecast that the Medibank Private Ltd (ASX: MPL) stock would surge as high as $3 at some point in 2015.
At the time, the health insurer's shares were fetching $2.31. Even then, numerous analysts believed the stock was well and truly overpriced with some suggesting it wasn't even worth the $2 retail investors had paid in the November float.
Now, one month on, Langley's forecast appears to be becoming more and more achievable. On a day where the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has risen a remarkable 2.4%, Medibank's shares have hit an equal all-time high at $2.53. With more than 10 months still remaining in the calendar year, the stock could certainly hit $3.
Right now however, the stock is trading on a multiple of nearly 27x last year's earnings, so it's definitely not a cheap investment prospect. Whether it reaches $3 or not will largely depend on how the company performs when it announces its half-year earnings results on Friday 20 February. Investors will expect to see a considerable improvement in the insurer's costs and margins, while they will also want to see evidence of its ability to grow earnings once those costs improvements have been made.
While you wait, there are plenty of other stocks which could deliver far greater returns than Medibank in the long run.
