Since the turn of the year, QBE Insurance Group Ltd (ASX: QBE) has been a star performer, with its shares rising by a whopping 26%. Part of the reason for this is a turnaround strategy that is starting to come to fruition, with the sale of non-core assets helping QBE to become more focused, more efficient and, ultimately, more profitable.
This, in addition to greater confidence regarding the company's future prospects, has led to a sharp improvement in investor sentiment, while insurance sector peer, Suncorp Group Ltd (ASX: SUN), has seen its share price decline by 2% since the turn of the year.
However, looking ahead, I believe that Suncorp will outperform QBE. That's not to say that QBE will perform poorly but, after the aforementioned share price divergence in recent months, Suncorp appears to offer excellent value for money when compared to its slightly larger sector peer.
For example, Suncorp trades at a considerable discount to the insurance sector, with it having a price to earnings (P/E) ratio of 14.8 versus 18.5 for the sector. This shows that there is considerable scope for an upward rerating moving forward, while QBE has a P/E ratio that slightly exceeds that of the wider sector, with its rating being 18.6. Of course, QBE does have excellent growth prospects and these translate to a price to earnings growth (PEG) ratio of 0.68 when combined with its P/E ratio. However, Suncorp's PEG ratio of 0.46 indicates that it offers better growth at a keener price.
In addition, Suncorp is a better income stock, with its yield of 5.9% being head and shoulders above QBE's yield of 3.4%. Certainly, QBE is forecast to increase dividends per share at an annualised rate of 17.2% during the next two years, but Suncorp's 10% per annum growth rate in shareholder payouts during the same time period should keep its income prospects ahead of those of its peer. And, in terms of sustainability, Suncorp's dividend coverage ratio of 1.2 indicates that its dividends are not only generous, but also sustainable, too.
Meanwhile, Suncorp has a better track record of growth than QBE. For example, its bottom line has risen by 12.9% per annum during the last five years, while QBE's has fallen by 18.8% per annum during the same time period. Of course, with QBE having a new strategy, its future is unlikely to be anything like its past, but the key takeaway is that it remains relatively early days in QBE's turnaround plan and, looking ahead, Suncorp may offer a less risky path to growth for long term investors.
So, while QBE is a great stock, I think that Suncorp is even better. Its superior yield, lower valuation, better track record and strong future growth prospects indicate that, while it has disappointed thus far in 2015, its share price could move significantly higher over the medium term.
