The NIB Holdings Limited (ASX: NHF) share price is having a tough time in 2024.
Over the past six months, the private health insurer's shares have lost approximately 20% of their value.
This means they are now trading within touching distance of a 52-week low.
Is this a buying opportunity for investors? Let's find out.
Image source: Getty Images
Is the NIB share price undervalued?
According to a note out of Goldman Sachs this morning, its analysts believe that investors should be picking up its shares at current levels.
The note reveals that the broker has retained its buy rating and $6.75 price target on its shares. Based on the current NIB share price of $6.03, this implies potential upside of 12% for investors between now and this time next year.
In addition, the broker is forecasting an attractive 4.4% fully franked dividend yield in FY 2025, boosting the total potential 12-month return beyond 16%.
What is the broker saying?
Goldman was pleased with NIB's trading update this week, noting that Australian residents health insurance (ARHI) policy holder (PH) growth was ahead of expectations. It said:
ARHI PH growth was 3.2% as at Oct-24 v pcp however this was 2% over the 4 mths to Oct-24 – tracking ahead of NHF's FY25 guidance of ~3% for FY25 on a run rate basis: This suggests a strong start to PH growth in FY25 likely driven by new product launches post FY24 which may start to normalise through the course of FY25.
The broker also highlights that its Midnight Health business performed particularly positively. It adds:
Revenue growth (4mths to Oct-24) was particularly strong in Midnight Health at $16.2m, up 116.4% on pcp while Honeysuckle recorded revenues of $7.9m, up 25.1% on pcp. We remind that NHF expects Honeysuckle to break-even in FY25 and Midnight in FY26. Overall, NHF's key focus areas remain on managing and pricing in claims growth to achieve and maintain target margins.
In light of the above, Goldman remains positive on the NIB share price and continues to see value in it. It concludes:
We are Buy-rated on NHF given: 1) It offers defensive exposure to the private health insurance sector 2) The claims environment (utilisation / inflation) is generally manageable albeit until recently 3) NHF policyholder growth has been better than industry, 4) Expense buffers available to support margins and 5) Strong approved rate increases.
Overall, this could make NIB one to consider, particularly if you're an income investor.
