Shares of American International Group, Inc. AIG tumbled to a 52-week low of $37.83 on Friday. However, the same recovered to some extent to close the trading session at $37.90. The shares might probably took a hit from the recent catastrophe loss estimates issued by the company, which might in turn weigh on its fourth-quarter profitability.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 36.6% in a year’s time, wider than its industry’s decline of 6.4%.
Factors Inducing the Downtrend
The company recently announced its catastrophe loss projection of $750-$800 million for the fourth quarter of 2018. This loss will be incurred in AIG’s General Insurance segment, which contributed a lion’s share to the company’s adjusted revenues for the first nine months of 2018. This weather-related loss will likely weigh on the company’s profitability, which suffered losses during 2016 and 2017 as well.
Moreover, the company’s cat loss of $2.15 billion for the first nine months of 2018, though 37% narrower than the year-ago period’s figure, weighed on its underwriting profitability. We believe that high exposure to catastrophe events will be a headwind going forward as well.
Moreover, the company’s revenues have been declining since 2013 due to competitive market conditions and a reduction in business due to numerous divestitures undertaken. This momentum persisted in the first nine months of 2018, mainly because of challenges in the property and casualty market and continued business dispositions will keep the top line under pressure in the coming quarters.
The company’s earnings have substantially missed estimates over the last five reported quarters, which remains an uninviting proposition for investors.
Its return on equity stands at 3.44%, significantly lower than the industry’s average of 7.71%. This reflects the company’s inefficiency to use shareholder’s funds.
Will the Stock Sink Further?
AIG witnessed its 2018 and 2019 earnings estimates move south by 1.5% and 1%, respectively, over the past seven days. Its unattractive Growth Score of D also disappoints. The company currently has a VGM Score of F. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. All these headwinds might pull the stock down going forward.
Stocks to Consider
Investors looking for some better-ranked stocks in the same industry may consider options like Cigna Corporation CI, MetLife, Inc. MET and MGIC Investment Corporation MTG.
Cigna offers insurance plus related products and services in the United States and internationally. It sports a Zacks Rank #1 (Strong Buy) and came up with average trailing four-quarter positive surprise of 13.46%. You can see the complete list of today’s Zacks #1 Rank stocks here.
MetLife offers services in the insurance, annuities, employee benefits and asset management businesses. The stock carries a Zacks Rank #2 (Buy) and delivered average beat of nearly 9.67% in the last four reported quarters.
MGIC Investment Corporation provides private mortgage insurance and ancillary services in the United States. The company pulled off encouraging average earnings surprise of 34.32% over the preceding four reported quarters. The stock has a Zacks Rank of 2.
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