American International Group, Inc. AIG is well poised to grow on the back of strategic acquisitions and its multi-year transformative program. Improving consumer spending is likely to drive the company’s net written premiums and sales growth in the coming days.
American International — with a market cap of $45.9 billion — is a leading global insurance organization. Building on its long history, it provides a wide range of property casualty and life insurances. Along with retirement solutions, it provides other financial services to clients in more than 80 nations and jurisdictions.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
The Zacks Consensus Estimate for American International’s 2021 earnings is pegged at $4.70 per share, indicating an 86.5% year-over-year rise. The company beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 8.5%.
American International Group, Inc. Price and EPS Surprise
American International Group, Inc. price-eps-surprise | American International Group, Inc. Quote
The consensus estimate for 2021 revenues stands at $46.4 billion, suggesting a 0.2% year-over-year rise.
The company currently has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company undertook a transformative program named AIG 200, which is a global, multi-year initiative to achieve transformational changes. This initiative, costing the company $1.3 billion provided $400 million cost savings in 2020. The company expects to achieve run-rate savings worth $1 billion by the end of 2022. The expense ratio improved 170 basis points (bps) in the first nine months of 2021, courtesy of alteration in business mix, ongoing expense discipline and improved premium base.
These initiatives will lead to operational efficiency and provide an extra boost to its operating margins. Also, American International selected Amazon.com, Inc.’s AMZN cloud computing platform, Amazon Web Services as its preferred public cloud provider. The move is in line with American International’s strategy of large-scale digital transformation and is expected to support its AIG 200 strategy. It is likely to enable the company to streamline its operations worldwide and boost efficiency. Also, the move will help the leading global insurance firm move most of its workloads off the legacy platforms, thereby enhancing security and market opportunities. The selection of Amazon Web Services is likely to stimulate American International’s long-term growth process and business expansion.
AIG has acquired Validus Holdings, Ltd. and Glatfelter Insurance Group, which strengthened its global General Insurance business. The company has made a significant shift in its capital utilization and now expects to utilize the capital for possible buyouts in the international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market as opposed to its hitherto usage of a capital resource for share repurchases. This strategy should lead to long-term growth via business expansion. Also, its robust cash generation abilities have enabled it to continue shareholder-friendly moves through share buybacks and dividend payouts. It expects to buy back at least $900 million of common shares by 2021-end in a bid to conclude the stock repurchase program of $2 billion.
Though the company's revenues have been under pressure for the past several years, the situation seems to have improved now. Revenues improved 11.5% in the first nine months of 2021. The company’s Commercial lines business witnessed a rate increase. The business climate is also likely to become favorable this year. Meanwhile, the Personal lines insurance business witnessed a recovery in the travel and warranty business. Consumer spending is also improving. This is likely to drive the company’s net written premiums and revenue growth in the days ahead.
Apart from AIG, other companies including Old Republic International Corporation ORI and CNO Financial Group, Inc. CNO are also benefiting from the rising tides.
Old Republic, based in Chicago, IL has operations in the United States and Canada. It engages in insurance underwriting and other services business. The company’s bottom line for 2021 is expected to jump 29.5% year-over-year to $2.90 per share.
Old Republic witnessed one upward estimate revision in the past 60 days compared to none in the opposite direction. ORI beat earnings estimates in each of the past four quarters with the average surprise being 54.6%.
Headquartered in Carmel, IN, CNO Financial’s cost-cutting initiatives are expected to enhance its earnings profile. The buyout of DirectPath is likely to bring enhanced benefits management services and enrollment capabilities to CNO.
In the past 60 days, estimates for CNO Financial’s 2021 increased by 5%. During this time period, it witnessed three upward estimate revisions compared with none in the opposite direction. CNO Financial beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 13.2%.
There are a few factors that are impeding the growth of American International.
Its high debt burden is concerning. At third quarter-end, it had cash of only $2.6 billion. The long-term debt was $24.6 billion. This can restrict its financial flexibility. Also, lower profits from individual retirement can hurt its earnings from Life and Retirement unit. Nevertheless, we believe that a systematic and strategic plan of action will drive AIG’s long-term growth.
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