On Apr 8, 2013, shares of American International Group Inc. (AIG) hit a 52-week high of $40.09. The company reported fourth-quarter results with a positive earnings surprise of 322.2%. AIG delivered positive earnings surprise in all 4 quarters of 2012 with an average beat of 119.6%.
On Feb 21, 2013, AIG reported its fourth-quarter operating earnings of 20 cents per share, which exceeded the Zacks Consensus Estimate of a loss of 9 cents. However, earnings fell from the year-ago quarter’s 77 cents per share.
Results reflected operating growth in the life insurance business and higher investment income along with stronger underwriting margins and higher profitability in Direct Investment Book (:DIB). However, higher interest expenses, lower premiums and higher catastrophe losses offset most of the upsides.
Post the full repayment of its $182.3 billion government bailout loan last year, AIG is steadily focusing on attaining capital flexibility. Last month, the company also repurchased the final warrants from the US Treasury for $25 million and redeemed $1.1 billion of additional debt before maturity.
Over the last several quarters, AIG divested more than 40 assets worth over $65 billion. In Dec 2012, the company further divested 90% stake in ILFC along with a runoff unit – American Fuji Fire and Marine Insurance Co., thereby further consolidating its core operations. AIG also aims to reduce exposure to businesses with inadequate pricing and increasing loss trends.
Going ahead, the simultaneous improvement in the company’s credit curve, disciplined claims management and earnings potential from its primary subsidiaries – Chartis and SunAmerica – are expected to shore up the core growth and help mitigate operational and financial risks.
Meanwhile, valuation looks reasonable for AIG. The shares are trading at a 35.8% premium to the peer group average on a forward price-to-earnings basis and 16.7% discount to the peer group average on a price-to-book basis. The return on assets is 50% above the peer group average. Nevertheless, the 1-year return from the stock is 21.9%, much above S&P 500’s return of 11.8%. The overall long-term expected earnings growth rate for this stock is 12.3%, which is in line with the peer group.
AIG currently carries a Zacks Rank #3 (Hold). Among others in the industry, CNO Financial Group Inc. (CNO) , XL Group Plc (XL) and Everest Re Ltd. (RE) carry a favorable Zacks Rank #1 (Strong Buy) and warrant attention.
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