Is Now the Time to Buy Aviva?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today, I am looking at Aviva  (LSE: AV  ) (NYSE: AV  ) to determine whether you should consider buying the shares at 300 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E) Ratio: Does the share look like a good value when compared to its competitors?

Price/Earnings-to-Growth (PEG) Ratio: Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock Price 3-Yr. EPS Growth Projected P/E PEG Yield 3-Yr. Dividend Growth Dividend Cover
Aviva 300 pence N/A 6.8 N/A 4.8% -26% N/A

The consensus analyst estimate for next year's earnings per share is 44.4 pence and dividend per share is 15 pence (44% fall).

Let me start by saying that, according to various websites, the current dividend forecast figure for Aviva is 20.3 pence per share. However, I believe this consensus figure could be misleading following Aviva's recent dividend cut and that the actual dividend payment for 2013 will be closer to 15 pence.

In addition, as Aviva reported a loss of 15.2 pence per share for 2012, it is not possible for me to calculate a three-year earnings growth rate. In addition, due to Aviva's loss, I am not able to calculate the company's PEG ratio or dividend cover.

That said, I am able to calculate Aviva's projected P/E. Indeed, Aviva is trading on a projected P/E of 6.8, below its peers in the life insurance sector, which are currently trading on an average P/E of around 17.7.

Supporting a dividend yield of 4.8%, Aviva's dividend income is significantly higher than the sector average of 3.6%. However, Aviva's dividend payout has fallen a compounded 26% over the last three years.

Finally, Aviva has a net asset value of 278 pence a share, which indicates that the company is currently trading at just a 7% premium to the value of its assets.

So is now the time to buy Aviva?
At the beginning of March, Aviva spooked investors when it announced it was going to slash its dividend in order to preserve cash after the company lost 3 billion pounds in 2012. However, I believe the market has overreacted to Aviva's woes and that the shares currently look undervalued.

You see, even though Aviva reported a loss of 3 billion pounds for 2012, this figure included a one-off writedown of 3.3 billion pounds, which was related to the disposal of the Aviva's U.S. business. Indeed, ignoring the writedown, it appears Aviva made an underlying profit of 1.7 billion pounds for 2012.

Furthermore, after the exclusion of currency movements, Aviva made an underlying profit of 1.8 billion pounds for 2012 -- the same as 2011.

In addition, it appears that management is working hard to restructure the company and improve shareholder returns. In particular, during 2012, it sold several underperforming divisions and achieved cost savings across the group of 275 million pounds.

So, after taking all of that into account and factoring Aviva's current discount to its peers, I feel now looks to be a good time to buy Aviva at 300 pence

More FTSE opportunities
In addition to Aviva, I am also positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013."

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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


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