Sterne Agee analysts John M. Nadel, Dan Farrell, and Nitin Chhabra look at AIG’s recent results and give their opinion on the performance of the company.
A new $1b buyback authorization and increase in common dividend are unlikely to overcome weak core insurance results, in our view.
AIG Reported/Core Results
American International Group Inc (NYSE:AIG) reported 4Q13 Op EPS of $1.15, above our $0.85 and consensus $0.96. At a high level, the contribution to EPS from higher than budgeted alternatives income plus the change in fair value of DIB/GCM totaled $0.50 ($0.22 from higher alternatives and $0.28 from DIB/GCM), well above our estimate of $0.03. On the other hand, the contribution to EPS from core insurance operations was a disappointing $0.65, well shy of our $0.82 estimate.
Capital Mgmt & Hold Co Liquidity
Buybacks totaled $405m in 4Q13, below expectations. That said, American International Group Inc (NYSE:AIG) authorized a new $1b buyback authorization, which results in buyback capacity of $1.4b including the $400m remaining on the old plan. Mgmt commentary on expected use of ILFC sales proceeds will be important on the conference call.
P&C Core Results Weaker Than Expected on Higher Large Loss Activity in Commercial, Higher Core Consumer Loss Ratio and Higher Expense Ratio Versus Our Forecast. AY ex cat CR was 102.0% versus 100.8% a year ago and our estimate at 95.6%. Adjusting for higher severe loss activity (3.2 pts versus 0.7 pts a year ago) and higher bad debt expenses in the year ago period (which we estimate at a 1.5 pt impact), core combined ratio was slightly higher at 98.8% versus 98.6% in the year ago period with improvement in commercial essentially offset by deterioration in consumer profitability. This compares to our estimates which assumed about 3.0 pts of core combined ratio improvement in the quarter. Core loss ratio ex large losses was about 60 bps higher than a year ago while expense ratio adjusted for bad debt expense in the y
I really would not place too much weight on three analysts who discussed a company and all came up with the same conclusion. Analysts should use their on skills and judgement to evaluate stock and companies. Discussing companies amongst themselves can often lead biases towards companies, meaning one analyst will influence the the thinking of others. This is likely the case here with one help a client cover his position.
If those results are weak I hope all my companies do this badly. What a load of junk. This is stock will be over $50 within a week and on to $60 and these analysts will be buying today. Don't be fooled by these guys.