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American International (AIG) Upped to Buy on Higher Estimates

Zacks Equity Research

On Aug 22, Zacks Investment Research upgraded American International Group Inc. (AIG) by a notch to a Zacks Rank #2 (Buy).

Why the Upgrade?

AIGhas been witnessing rising earnings estimates on the back of consistent improvement in core operations, also reflected in its second-quarter 2014 earnings results.

Upward estimate revisions on AIG stock reflect optimism. The Zacks Consensus Estimate for 2014 and 2015 moved north by 4.3% and 0.8% to $4.57 and $4.98 per share, respectively, in the last 30 days. Notably, on year-over-year basis, earnings are expected to improve by 0.1% in 2014 and 9.1% in 2015.

Moreover, the Most Accurate estimate for AIG’s 2015 earnings currently stand at $4.99 a share, resulting in an Earnings ESP of +0.2%. This indicates a likely earnings beat for the next year as well.

Lower catastrophe losses in the past months have also helped control expenses. Additionally, the divestment of all major non-core assets, the last being International Lease Finance Corp. (:ILFC), has strengthened AIG’s capital position and liquidity as well as aided streamlining of businesses. This is also evident from the fact that the company is now contemplating acquisitions to enhance core insurance operations.

Additionally, this multi-line insurer delivered positive earnings surprises in all of the last four quarters with an average beat of 13.5%. On Aug 4, AIG reported second-quarter 2014 operating earnings per share (EPS) of $1.25, which surpassed the Zacks Consensus Estimate of $1.05 by 19% and the year-ago quarter EPS of $1.12 by 11.6%.

Notably, the company earned a post-tax gain of $1.4 billion or 96 cents per share from the ILFC salein the reported quarter. Although top line fell 12.6% year over year, modest growth was witnessed in premiums, fees and investment income. Alongside, total benefits, claims and expenses plunged 23.8%, overall aiding accretion in earnings, book value per share and return on equity (:ROE).

Going ahead, sturdy fundamentals, debt reduction, improved investment portfolio, efficient capital deployment and profitable writing of businesses are expected to mitigate market risks and drive growth in the upcoming quarters, thereby instilling a positive sentiment among investors.

Other Worthy Insurers

Apart from AIG, one could consider insurers like National General Holdings Corp. (NGHC), Mercury General Corp. (MCY) and Endurance Specialty Holdings Ltd. (ENH). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on AIG
Read the Full Research Report on NGHC
Read the Full Research Report on ENH
Read the Full Research Report on MCY

Zacks Investment Research