Today I am spelling out why I believe shares in Aviva (LSE: AV) (NYSE: AV.US) should continue to move skywards as the firm’s transformation plan delivers stunning earnings growth.
Earnings expected to explode from this year
Shares in Aviva have exploded higher since April’s one-year lows, gaining 50% in the process and striking their highest since July 2011 above 440p in recent days. And I believe that the firm’s stock should keep heading higher as earnings surge — the City’s analysts are expecting earnings per share (EPS) to race to 43.2p in 2013, rebounding from losses of 15.2p per share last year.
The company’s half-year report in August revealed the sterling work which management has accomplished as part of its broad restructuring initiative, with cost-cutting measures continuing to run ahead of schedule. Indeed, a 9% reduction in operating expenses during January-June, to £1.53bn, helped to drive a 5% improvement in operating profit to £1.10bn. Restructuring costs also dropped 10% to £164m during the period, and Aviva expects this to fall even further from next year onwards.
Although Aviva’s restructuring plan was mainly responsible for the profits improvement during January-June, the company also proved that it is still a tough customer when it comes to generating new business. Indeed, the insurer saw the value of new business surge 17% in the first six months of the year, to £401m, underpinned by a 16% improvement in new UK business to £211m.
Aviva continues to benefit from its stellar reputation in the domestic insurance space, while the firm’s strength is also built around its diversity across a multitude of markets including the car, home, travel, health and life arenas.
The City’s  smashing earnings projections for 2013 currently leave Aviva trading on a P/E rating of 10.2, providing a sizeable discount to the current forward average of 14.6 for the complete life insurance sector and 16.5 for the wider FTSE 100.
And as EPS is expected to roll 9% higher in 2014, to 47.2p, this leaves Aviva dealing on a P/E rating of 9.3, just below the benchmark of 10 which represents stunning value for money. With a price to earnings to growth (PEG) readout bang on the bargain threshold of 1 for next year, too, I believe that Aviva is a great pick for those seeking an exceptional turnaround play at a great price.