It was yet another positive day of trade for the NIB Holdings Limited (ASX: NHF) share price on Monday.
The private health insurer's shares climbed almost 2.5% to hit an all-time high of $8.17.
Why is the NIB share price on fire?
NIB's shares have been on fire since the surprise election result earlier this year.
The reason for this is that Labor had planned to limit health insurance premium increases to 2% if it won the election. This was expected to put a lot of pressure on the margins of both NIB and rival Medibank Private Ltd (ASX: MPL).
So, with Labor failing to get across the line and the Morrison government having no real stance on premiums, the outlook for the private health insurance providers improved greatly.
Can the run continue?
Whilst most broker notes that I have seen agree that NIB is very likely to deliver a strong full year result next month, many of them feel its shares have become overvalued now.
In fact, NIB's shares raced higher on Monday despite being downgraded to a sell rating with a $6.00 price target by analysts at Morgan Stanley.
It notes that structural issues continue to overhang the sector and expects the falling participation rate and an ageing pool of participants to put upwards pressure on claims per policy.
And Morgan Stanley isn't alone with this view. Earlier this month analysts at Citi downgraded its shares to a sell rating with a $7.05 price target. They believe the post-election share price rally has gone too far and left its shares overvalued.
This view was echoed by analysts at Goldman Sachs. According to its broker note, Goldman downgraded its shares to a sell rating with an even lower price target of $5.63.
Its analysts said: "Whilst the election outcome was undoubtedly positive for the industry, we expect only limited reprieve to the outlook for earnings. Recent reform measures are having little positive impact, policyholder/mix pressures remain unchanged, and we expect that near term rate increases will be kept <3%."
In light of this, Goldman believes "holding margins will remain difficult and we don't see this being reflected in current valuation." NIB's shares are currently trading at over 26x estimated forward earnings.
Despite this, and much to the delight of shareholders, investors have continued to bid up its shares to new highs. But how long it can continue, only time will tell.
