Legal & General Group (LSE:LGEN) is one of the most popular FTSE 100 stocks to buy, largely thanks to its mammoth 8% dividend yield. While passive income might be the main attraction, it’s worth considering where the Legal & General share price could go next.
The stock’s up 2% since January, although it’s fluctuated a fair bit. So should we expect more of the same or might the share price find a clearer direction from here?
Here’s my take.
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Broker forecasts
The consensus 12-month City forecast for Legal & General shares is 275p, which implies a 9.2% gain from today’s level.
However, that median figure encapsulates a wide spread of predictions. These range from a 16.6% fall at the bottom end to a 33% rise from the most bullish analysts.
Now, it’s worth taking any forecasts about a stock’s future direction with a pinch of salt — including my own!
After all, none of us have a crystal ball. Where the share price will go next hinges on multiple factors, including future earnings and changes in the macroeconomic climate.
Nonetheless, it’s a useful starting point to gauge current market sentiment.
Changes on the horizon
One factor that could have a significant impact on Legal & General’s share price is a planned strategic overhaul. On 12 June, the company’s due to conduct a review of all business units.
This will be spearheaded by new CEO António Simões and a fresh set of advisors. Some analysts anticipate the firm will boost investment in pensions and overseas growth.
One further possibility is the potential deployment of surplus cash in a share buyback programme. Such a move could have a positive effect on the share price.
However, there’s a risk the market could be underwhelmed by any announcements, or react negatively. Much will depend on the guidance and exact words used on the day. Accordingly, it’s a critical date for prospective investors to mark in their calendars.
Current performance
Recent results shed some light on the insurer’s prospects heading into the second half of the year. Overall, the numbers were a mixed bag.
Starting with the positive aspects, Legal & General’s solvency II coverage ratio (a key marker of financial health) stood at 224% at the end of 2023. This beat consensus estimates of 217%.
In addition, the company’s bulk purchase annuities division is performing well. The overall market for pension insurance transactions is booming at present, suggesting there are more growth opportunities for the firm to tap into. The total volume of £50bn in deals completed was a record for a calendar year.
However, the group’s operating profit of £1.67bn fell short of the estimated £1.75bn. Weakness in the UK economy and bond market volatility weighed on Legal & General’s performance. Both are ongoing risks for share price improvements.
My prediction
Overall, I’m optimistic about L&G’s strategic overhaul. If the market reacts positively to the new leadership’s vision, the share price could get a healthy boost.
Plus, a forward price-to-earnings (P/E) ratio of just 10 suggests the stock might be currently undervalued. With that in mind, I’m happy to go with the more bullish analysts. I believe that the shares could reach 290p by the end of the year. I may be wrong, of course, but I believe it’s a stock worth considering.
