Is the Medibank share price a smart buy for rising inflation?

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

When it comes to inflation, the Medibank Private Ltd (ASX: MPL) share price might just jump to mind. After all, the costs of all private health insurance (not just Medibank’s) have been rising by more than the rate of inflation for years now.

But now we’ve just received confirmation that inflation in the Australian economy is at an annualised rate of 6.1% (the highest in decades), ASX investors have inflation to worry about.

Medibank is the largest provider of private health insurance in the country. It used to be a government-owned company, but was privatised back in late 2014 and listed on the ASX.

Since that time, the Medibank share price has appreciated by 58.5%. That’s including the 0.3% loss Medibank shares have clocked so far today, putting the company at $3.44 a share. That works out to be a compounded annual growth rate of approximately 6.34%, not including dividend returns.

So is the Medibank share price a smart buy for rising inflation going forward? Let’s see what one expert investor reckons.

Is the Medibank share price a buy today?

According to Livewire, ASX broker UBS has just upgraded its rating on Medibank shares. The broker has raised its rating on Medibank shares from “neutral” to “buy”. That came with a 12-month share price target of $3.90. That’s up from the previous target of $3.35.

If Medibank shares do rise to $3.90 over the coming year, it would result in an upside for investors of 13.4% from the current share price.

UBS has identified Medibank as a share to buy in these inflationary times. UBS analyst Scott Russell reportedly cited Medibank’s “relatively stable revenues and predictable margins, improving claims trends assisted by [government] policy, and rising investment yields among its attractive attributes”.

“Whilst the stock doesn’t look cheap at around 20 times PE [price-to-earnings ratio], we think these attributes are unique amongst financials and attractive at this point in the cycle,” Russell said.

So that’s a fairly bullish outlook on the Medibank share price. No doubt investors will be happy with that assessment. But we shall have to see what the coming 12 months bring to the table for Medibank shares.

At the current Medibank share price, this ASX 200 healthcare share has a market capitalisation of $9.47 billion, with a dividend yield of 3.78%.

The post Is the Medibank share price a smart buy for rising inflation? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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