Medibank Private is under Algo Engine buy conditions and is a current holding in our ASX 100 model.
At 19x forward earnings and 2 – 4% earnings growth, Medibank is a strong candidate for a covered call overlay to enhance the investment returns.
The stock trades on a forward yield of 3% and when adding a covered call, we can boost the cash flow to 10% on an annualized basis.
Buy MPL at $3.25 and look for a move higher to $3.50 before selling call options.
For more information on this strategy, please call our office on 1300 614 002.
Medibank is now under Algo Engine sell conditions.
MPL reported 1H19 earnings today and for the most part the results are ahead of consensus. Although, NPAT is flat on the same time last year at $232m
Dividend for the half is at 5.7 cents based on a 70% payout ratio. MPL is a stable low growth business that offers 4.5% forward dividend yield.
We sell value back at $2.50 – $2.60 range.
Our Algo Engine shows Medibank remains under “buy conditions”.
With yesterday’s update at their AGM showing that the improved momentum in 2H18 had continued into 1Q19, we recommend accumulating the stock.
Buy Medibank and sell out of the money call options to enhance the income.
Shares of MPL have rebounded smartly since posting a two-year low of $2.62 on October 26th.
The company is holding its AGM today and we expect a favorable reaction from investors.
As announced in their FY18 results, MPL expects growth in operating profits around 25% for FY19 combined cutting $60 million of management costs over the next three years.
On balance, we see MPL as well positioned in the healthcare sector with an upside target just over $3.10
In Monday’s Opportunities in Review webinar, we highlighted MPL as a high conviction buy strategy. Our entry level was $2.75.
The price action this week suggests offshore fund managers have been aggressively buying Medibank.
With a defensive 4.3% yield, the stock is attractive at current levels.
We recommend buying Medibank Private at current levels.
Since trading down to $2.62 on Monday, the stock has risen 6% and reached $2.79 in early trade today.
The internal momentum indicators are now pointing to resistance near $3.10.
Since posting a high of $3.30 on August 20th, shares of MPL have dropped over 12% and posted a low of $2.87 in early trade today.
Internal momentum indicators are now reflecting and oversold condition on the daily charts.
We recommend accumulating MPL in the 2.75 – $2.90 range.
Our Algo Engine generated a buy signal in MPL on Friday.
With the share price retracing from a $3.39 high, (formed in February), to close at $2.89, we now draw your attention to MPL as it enters our value range.
MPL’s earnings report last month showed the company is struggling to grow revenue and bottom line profit, therefore 2019 will likely show flat to no growth.
However, with the stock on a 4.4% yield and adding a covered call option, 10 – 12% annualized cash flow can be generated without too much downside risk.
Look to accumulate within the $2.80 – $2.90 range.
We see Medibank staying within a $2.90 – $3.20 consolidation range. There was nothing in last week’s earnings result to suggest otherwise.
With the stock on 4.1% yield, little to no revenue growth and flat underlying earnings at best, we see MPL as a “tight buy-write” strategy.
The only opportunity here is to strip out the dividend, franking credits and option income to generate 10 – 12% cash flow from a relatively low risk stock.
Value emerges near support at $2.70.
We suggest accumulating Medibank near the $2.85 support level.
Medibank is a current holding in the ASX 50 model portfolio from may 30th at $2.73.
Following the correction from the January high of $3.30, the stock now trades on a forward yield of 4.5%.
We expect a rally from the current $2.85 level back towards $3.00. We will then add a covered call option, which will help further enhance the annualised cash flow.