We have upgraded life and property insurer -
American International Group Inc.
) to Outperform based on its improving operating and financial
leverage, gaining scope for long-term growth.
Why the Upgrade?
AIG has witnessed modest upsides in its earnings estimates
following its second-quarter 2013 results released on Aug 1. Both
earnings per share (EPS) and total revenues of $1.12 and $17.32
billion beat the Zacks Consensus Estimate by 31.8% and 38.4%,
respectively. Moreover, both the top- and bottom line exceeded
the year-ago results by 6.7% and 16.7%, respectively.
Improved operating earnings across both life and
property-casualty segments were led by lower claims and expenses
as well as higher assets under management (AUM). These factors
also drove the book value per share, combined ratio, return on
equity (ROE) and operating cash flow.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for 2013 rose 5.2% to $4.27 per share in the
last 60 days. Moreover, the Most Accurate Estimate for AIG's 2013
earnings stands at $4.34 a share, resulting in a positive
Further, the earnings estimate for 2014 is pegged at $4.22 per
share, up 1.4% for the similar period. With the Zacks Consensus
Estimate for both 2013 and 2014 rising steadily, the company now
has a Zacks Rank #2 (Buy).
We hold a strong positive bias on the company, with reasons
that justify the bias. AIG has come a long way by fully repaying
the government loan and streamlining its core insurance
operations. The efforts are also visible in the improved
financials in the past few quarters. Consistently improving
operating leverage and debt reduction has also supported AIG to
approve another share buyback program and initiate dividend
payouts. These factors score well with the ratings agencies and
investors as well.
With consistently higher operating performance in the first
half of 2013, we expect the company to benefit from its scale of
operations, pricing improvements and disciplined expense
management in 2013, along with a positive recovery in the
Other Financial Stocks That Warrant a Look
Along with AIG, other outperformers of the financial sector
Hartford Financial Services
ING US Inc.
), carry a Zacks Rank #2 (Buy) and also appear impressive.
AMER INTL GRP (AIG): Free Stock Analysis
ASSURANT INC (AIZ): Free Stock Analysis
HARTFORD FIN SV (HIG): Free Stock Analysis
ING US INC (VOYA): Free Stock Analysis Report
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