AIG Earnings: Great Expectations

By Marek Fuchs

Do you want a real challenge? Try figuring out with any degree of metaphysical certainty whether expectations for a particular earnings report are low or high.

Take American International Group’s (AIG) first quarter report, due out Thursday after the bell. And before you jump in, I know what you're going to say: You know the expectations. They stand at 88 cents a share on $8.64 billion in revenue (based here on FactSet calculations).

But in pinpointing the precise trajectory of these expectations, Wall Street estimates are only one factor to consider — and a thin one at that. You need more. Much more. And AIG, in fact, suffers from a particularly lofty set of expectations. Ahead of earnings, here’s what you really want to look at:

Are analysts leaning up or down?

Analysts, guided by signals from AIG, are showing their confidence cards. That 88 cents is up by a factor of a nickel in the past month.

Bend an ear to the whispers

Whisper numbers (which traders throw about more informally) stand a good deal above the rising consensus. These numbers for AIG are currently at $1.01 a share, according to earningswhispers.com. The takeaway, though, is clear: Expectations are higher than the majority are acknowledging. Take that 88 cents with an ice-cream scooper of salt.

Turn amateur technical analyst

You don’t have to be a chartist to eyeball the price performance in the past month — during which AIG’s stock is up over 8 percent — to realize traders are waiting for something good. Very good.

Is love in the air?

AIG is one of the most widely held hedge fund stocks and its CEO, Robert Benmosche, is such a darling of the media that a reporter recently joked (we hope) that he was going to get a tattoo of him. If that isn't love, what is?

Is there hope for a dividend increase or stock buyback?

Just get a load of this Motley Fool headline: “Dividend Speculation at AIG Means Big Win.”

Enough said.

Did management prime the rhetoric pump last quarter?

When AIG reported its 4th quarter, Benmosche said, "This is a good story for several years to come." He also added, for good measure: "We're going to do a dividend as soon as we think it makes sense.” Traders were breathing hot and heavy, pushing the stock up strongly in the wake of earnings, setting the stage for a solid performance in the three months since. But few traders, analysts and media members reference back to the previous quarter’s words. Since these words often help set the true level of expectations, you should.

AIG, of course, has a contemporary history as messy and controversial as any, complete with bailouts, a threatened lawsuit against taxpayers, a rogue former CEO, a retiring current CEO and billions in hurricane losses. In spite of everything, however, traders and the media are treating AIG as if it has regained a sense of itself. Whether their confidence is earned or misplaced will be determined, for the foreseeable future, by whether AIG meets the lofty expectations management — as well as Wall Street and the media — have set.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.