On Jan 4, Zacks Investment Research upgraded American International Group Inc. (AIG) to a Zacks Rank #1 (Strong Buy) from a Zacks Rank #3 (Hold).
Why the Upgrade?
AIG has been experiencing modest corrections in earnings estimates on the back of an improved outlook for 2014 that should get a boost from the sale of its aircraft leasing unit – International Lease Finance Corporation (:ILFC). Moreover, the company’s secure core fundamentals and capital position have been impressive.
Additionally, this global multi-line insurance giant delivered positive earnings surprises in all the last 4 quarters with an average beat of 102.4%. AIG also outperformed the one-year S&P 500 index return, which posted an increase of 24.9% against the return of 40.3% clocked by the company.
On Oct 31, AIG reported third-quarter operating earnings per share of 96 cents, which comfortably surpassed the Zacks Consensus Estimate of 93 cents. However, the results dipped 3% from the year-ago quarter number of 99 cents per share. Most of the downfall was caused by lower revenues and loss of income from AIA Group Ltd. and Maiden III.
Growth was driven by improved assets under management (:AUM), lower claims and higher premiums within the Life & Retirement segment. This was partially offset by lower claims and investment income in the property and casualty (P&C) segment, although combined ratio improved due to lower expenses.
AIG’s diversified business mix, strong enterprise risk management, stable ratings and improved results raise optimism. Moreover, the sale of ILFC not only consolidates AIG’s core operations, it also simplifies the company’s balance sheet and increases liquidity. This $5.4 billion sale deal with AerCap Holdings NV is expected to close by mid-2014. These factors should boost capital deployment activities going ahead, boosting investors’ confidence in the stock.
The Zacks Consensus Estimate for 2013 moved a penny north at $4.36 per share in the last 60 days. The estimate for 2014 too moved up 2 cents to $4.25 over the same period.
Meanwhile, the Most Accurate Estimate for AIG’s 2014 earnings stands at $4.41 a share, resulting in an Earnings ESP of +3.8%.
Other Insurers Worth a Look
Investors interested in the insurance industry may also consider stocks likePrudential Plc (PUK), Endurance Specialty Holdings Ltd. (ENH) and CNO Financial Group (CNO). All these stocks sport the same Zacks Rank as AIG.