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The US Senate has approved cutting tax rate from 35% to 21%, which could present windfall gains to corporates and long-term adjustments in operating flow generation. Whereas the tax break will likely be profitable for equity investors such as Berkshire Hathaway (BRK.B), companies engaged in US exports have weakened due to growing expectations of a fiscal deficit and the domestic manufacturing sector. Berkshire is expected to benefit from lower taxes on its holdings.
This could indicate that investors who seek to profit from falling equity prices are not currently targeting AIG. Over the last month, growth of ETFs holding AIG is favorable, with net inflows of $17.09 billion. This is among the highest net inflows seen over the last one-year and the rate of additional inflows appears to be increasing.
Berkshire Hathaway (BRK.B) continues to garner higher expectations for its operating performance. Berkshire is expected to post EPS (earnings per share) of $2,633 in 4Q17, marginally lower than 4Q16’s $2,665 and a substantial improvement from 3Q17. The rise is expected due to lower losses in the insurance space and growth by BNSF Railway and the manufacturing sector. Earnings before taxes for Berkshire’s service, manufacturing, and energy divisions and BNSF Railway rose 1%–9% year-over-year in 3Q17.
Hartford (HIG) expects the recent tax law and catastrophe losses to impact its fourth-quarter 2017 results adversely. However, the company remains optimistic about the long-term benefits from it.
Of 20 analysts tracking AIG, seven suggested a “strong buy,” nine recommended a “hold,” one suggested a “sell,” and three rated AIG stock as a “buy.”
On an NTM (next-12-months) basis, American International Group (AIG) has a price-to-earnings ratio of ~11.6x compared to its peers’ average of ~13.9x, which implies lower valuations.
In January 2018, Tom Bolt will become AIG's chief underwriting officer. Bolt has more than 30 years of experience in the reinsurance and insurance industry.