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American International Group (AIG) Up 25.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for American International Group (AIG). Shares have added about 25.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American International Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AIG Miss Q1 Earning & Revenue Estimates

American International Group’s first-quarter 2020 operating income of 11 cents per share,  missed the Zacks Consensus Estimate by 86.75%. In the year-ago quarter, the company reported earnings of $1.58 per share.

Total revenues of $10.92 billion were down 15.3% year over year and also missed the Zacks Consensus Estimate by 5.63%, due to lower, premiums and net investment income.

Total net investment income of $2.5 billion was down 36% year over year
Total benefit expenses of $11.9 were up 5.2% year over year, due to higher amortization of deferred policy acquisition costs.

The company incurred catastrophe loss of $419 million, up 139.5% year over year. The current quarter’s catastrophe loss included $272 million of estimated COVID-19 losses and rest were related to weather loss.
Adjusted return on equity was 0.8%, compared with 11.6% in the year-ago quarter.

As of Mar 31, 2020, the insurer’s adjusted book value per share (excluding AOCI) was $60.55, up 3% from Dec 31, 2019 levels.

Strong Segment Results

General Insurance

Net premium written of $5.9 billion was down 2% year over year, due to a decline in premium in and international business, partly offset by increase in North America premium.

The segment reported underwriting loss of $87 million compared with underwriting gain of $179 million in the prior-year quarter. Combined ratio of 101.5 deteriorated 410 basis points, due to higher catastrophe losses.

Life and Retirement

Premium and fees was up just 1% year over year to $1.95 billion, led by higher contribution from Individual Retirement, Group Retirement, Life Insurance partly offset by lower contribution from Institutional Market
The segment reported adjusted pre-tax income of $574 million, down 38% year over year, due to lower contribution from Group, Life and Individual sub-segments.

Financial Position (as of Mar 31, 2020)

The company had long-term debt of $25.3 billion, down 5.2% year over year. Total assets of $510.5 billion were down 0.5% year over year.
Shareholder equity was $47 billion, up 98% year over year.

Share Buyback and Dividend Update

The company repurchased shares worth $500 million. As of Mar 31, 2020, the company has $1.5 billion remaining under its share buyback authorization.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -26.48% due to these changes.

VGM Scores

At this time, American International Group has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American International Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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