Up 26% this year, what's the view on IAG Shares?

Momentum is behind the insurance giant's stock.

| More on:
Modern accountant woman in a light business suit in modern green office with documents and laptop.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Insurance Australia Group Ltd (ASX: IAG) shares have surged 26% this year to date and are trading at $7.16 per share at the time of writing.

It's been a blockbuster twelve months for the insurance giant. From July through December 2023, the stock traded in a range of around $5.50 to $6.10 per share.

But as we rolled into the new year, things changed. It has now rallied from lows of $5.55 in January to its current levels.

Created with Highcharts 11.4.3Insurance Australia Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Jul 202311 Jul 2024Zoom ▾Jul '23Sep '23Nov '23Jan '24Mar '24May '24Jul '24Jul '23Jul '23Oct '23Oct '23Jan '24Jan '24Apr '24Apr '24Jul '24Jul…Jul '24Jul…www.fool.com.au

With such impressive gains, you might wonder if it's too late to buy IAG shares. Let's dive into what's driving this performance and what to expect moving forward.

IAG shares surge this year

IAG shares are up this year following a number of company-specific updates. The most recent gains are partly due to a $2.5 billion, five-year agreement with Berkshire Hathaway Inc's subsidiaries for reinsurance protection.

This deal provides IAG with up to $680 million in additional protection per annum starting in FY 2025. It aims to cap natural perils costs at $1.28 billion this financial year.

Investors may have been bullish, given that Berkshire is Warren Buffett's conglomerate. Or, it may be due to the company's reinforced position, as its CEO said it plays a "critical role as an economic shock absorber" in Australia and New Zealand.

IAG's HY FY24 financials were also reasonably strong.

Gross written premium (GWP) increased by 12.5% to $7.9 billion, whereas insurance profit rose by nearly 75% to $614 million.

The company also declared an interim dividend of 10 cents per share and announced a $200 million on-market share buyback. These are shareholder-friendly moves, in my view.

Investors seem to think so as well. Since the insurer posted its half-year numbers in February, IAG is up by $1.10 per share.

What's the view on IAG shares?

We can never predict the stock market's future movements. But one thing for sure is that we don't want to overpay to buy a share.

IAG shares currently trade on a price-to-earnings ratio (P/E) of 22.6 times. This says that investors are paying $22 for every $1 of the company's earnings.

This is more expensive than the 18 times multiple for the iShares Core S&P/ASX 200 ETF (ASX: IOZ), which tracks the benchmark index.

Therefore, you are paying a premium in buying IAG today.

What do analysts say?

Analysts are also split on whether to buy the company now or not.

Goldman Sachs has a neutral rating on IAG shares and a 12-month price target of $6.72. It notes potential risks like volume loss due to rate increases and persistent claims inflation.

However, it also acknowledges IAG's strong rate cycle and capital flexibility. The "operating leverage on its expense ratio" could also drive growth, it says.

Citi, on the other hand, favours IAG over rival Suncorp Group Ltd (ASX: SUN) due to its cost-cutting opportunities and earnings growth. But it values the stock at $6.75 apiece – around 6% lower than where it currently trades.

CommSec data indicates that the consensus of analyst ratings for IAG shares is a moderate buy, with 5 buy ratings and 7 hold ratings.

At the time my colleague Bronwyn covered IAG back in May, this split was 4 rating it a buy, 9 rating it a hold, and 1 analyst rating it a sell.

As such there is now 1 more firm that rates IAG a buy versus 2 months ago, and none rating it a sell.

Foolish takeaway

In my opinion, the view on IAG shares is currently bullish. Although, whilst some brokers are bullish, the stock has rallied past their price targets. There is no saying if they will revise these numbers.

One thing is true – the stock has several tailwinds behind it. But the risk is in overpaying at a 22 times P/E ratio, which is higher than the ETF tracking the benchmark index.

Regardless of the outcome, remember to conduct your own due diligence.

Should you invest $1,000 in Latin Resources right now?

Before you buy Latin Resources shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Latin Resources wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 Berkshire Hathaway and Goldman Sachs Group. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Financial Shares

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

Want a financial stock outside the big 4 banks? Macquarie tips 15% upside for this small cap financial

For those searching on the edges, this name could be worth a second look according to Macquarie.

Read more »

A man looking at his laptop and thinking.
Financial Shares

Are IAG shares a buy, hold, or sell following the RAC WA deal?

How does Goldman Sachs rate IAG shares after the $1.35B deal with The Royal Automobile Club?

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format.
Broker Notes

8 alternative ASX financial shares to buy instead of bank stocks: broker

Top broker Macquarie has put an outperform rating on scores of non-bank ASX financial shares.

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Financial Shares

IAG share price charges higher on $1.35b deal and guidance update

This blue chip has made a big announcement. Here's what you need to know.

Read more »

A woman holds up hands to compare two things with question marks above her hands.
Financial Shares

Which is better value right now, Soul Patts or Brickworks shares?

Let's dive in and see what the experts have to say.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Financial Shares

How much upside does Macquarie tip for Pinnacle Investment Management shares?

Pinnacle could be a contender to continue rising, according to experts.

Read more »

Delighted adult man, working on a company slogan, on his laptop.
Financial Shares

Macquarie tips 28% upside for this ASX financial stock

This stock has a lot of potential.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Earnings Results

Why is the QBE share price racing ahead of the benchmark on Friday?

Investors are bidding up QBE shares today. But why?

Read more »