You can call me names if you like, I am asking you if I am missing something in my analysis of how many cars the company would need to see to justify its valuation?
$80,000 per car X 125,000 cars = $ 10 billion dollars...
$10 billion X 15% net profit margin = $1.5 billion in earnings...
$25 billion market cap / $1.5 billion in earnings = 16.67 p/e ratio
Am I missing anything here?
Keep something in mind....Firstly, if AIG is using outdated underwriting systems that require unnecessary jobs, that leads to higher expenses and less net profit. Paying 1,500 people to do the jobs that technology will allow 100 people to do, is wasteful and not shareholder friendly. These layoffs have been expected and are neccessary.
Secondly, since the financial crisis AIG has been the most risk adverse property casualty company on the planet. They've had to...the Fed restricted what they could do, and internally they were restricted from taking on any risk business whatsoever.
Recently, Miller came out and said AIG is going back on offense shortly. Which means they will start to take on appropriate risk which is needed to generate new profit from prop casualty underwriting.
"Looking ahead to 2014, we would expect continued progress in expanding our risk-adjusted returns through growth and capital efficiency. The sale of ILFC, as Bob mentioned, to AerCap, is on track for closing in the second quarter.
The transaction was valued at $5.4 billion upon announcement, using a $24.93 share price for AerCap and any adjustment in that value on closing will reflect the change in the AerCap share price and will be recorded as a non-operating gain or loss on sale."
Longs, we own 100 million shares at a cost basis of $24.93.....those same shares are worth $3850 today, which represent a gain of $1.4 billion dollars that is yet to be recorded. This number could be well over $2.5 billion by the time AIG exists its position in AerCap. This will significantly boost earnings in fiscal 2015/
trade at 70% of their book value are companies that are seriously dysfunctional with poor earnings power. Meanwhile, AIGs earnings are growing, they are expanding into Asian markets, and the are issuing significant buybacks, yet it trades at a valuation that would indicate it is significant disarray. Don't worry, this gap between price and value will close soon enough. Until then, know you are buying $1 bills for 70 cents.
In my opinion these layoffs should not come as a surprise to anyone. During the last few quarterly conference calls, management has made it clear that they have been investing heavily into their new state of the art electronic underwriting platform, with the intention that it would "reduce expenses". Well, outdated jobs are an expense fellow shareholders. People cannot expect AIG to use 20th century insurance practices in the 21st century if the company wants to stay competitive globally. While I feel for any American who loses their job, I must be honest to say that an American working an outdated job where they are not learning new skills is not doing their company or themselves any favor. CEO says jobs moving to Asia? That is a good thing too...that is where the majority of Life Insurance business is the be had, and likely prop casualty as well.
The bottom line is, we've all been screaming for 15% shareholder return on equity, and the company is doing what it needs to move towards these goals Revenue - Expenses = The numbers that matter to shareholders. The lower that expense number gets, the more net income we see.
This is bullish news.
I've always said that when the valuation gap between price and book closes, I expect it to close within a matter of months. If you look at Wal-Mart....that stock was very cheap, and all of a sudden in 2012 it was like everyone realized how cheap it was at the same time and it shot up 30% in no time. I would not be surprised to see the same thing happen here.
earned $1.40 in 2013 and trades at $440. Eventually the price to value pendulum will swing back to normalcy for both of these companies.
Call it a hunch, call me foolish, but I really think that this earnings release is going to be a very good one. AIG spent millions on rolling out electronic underwriting platforms and last quarter was the first in which these were fully operational. It will be interesting to see how they benefit the expense side of things. Also, they will obviously discuss the sale of ILFC and hopefully the mark to market of the 100 million shares of AerCap we own. All in all I expect this quarters conference call to be much more upbeat than the last one. Good luck everyone, looking forward to discussing your thoughts on the quarter after results are released.
Ask yourself, why is this individual posting this?? Oh I know, because he is clearly underwater on his short position and desperately needs the price to drop....not happening.