On Jun 27, we issued an updated research report on
American International Group Inc.
). The successful streamlining of operations to control costs,
along with business de-risking, strong ratings and capital
flexibility attained with the divestment of ILFC should boost AIG's
results ahead. However, intense competition and volatility in
interest rates and currency pose near-term risks.
This Zacks Rank #3 (Hold) stock has delivered positive earnings
surprises in all the last 4 quarters with an average beat of 16.7%.
Although the company's first-quarter 2014 earnings topped the Zacks
Consensus Estimate by about 12%, it was lower than the year-ago
quarter figure by 9.7%.
AIG has also been incurring high catastrophe losses and
restructuring charges, including loss from discontinued operations,
which reduced operating earnings significantly in the past several
quarters. Although the company's operational realignment indicates
long-term synergies, the implementation costs may hamper margins in
the upcoming quarters. Moreover, a weak interest rate environment
continues to reduce returns on investment and equity.
Increasing Capital Flexibility
Nonetheless, AIG has divested redundant assets worth over $70
billion at attractive valuations since 2008. Adding to AIG's
capital flexibility, credit profile and liquidity, the divestment
of ILFC (the only major-most asset left for disposition at AIG)has
enabled the company to get rid of liabilities worth $2.6 billion
and focus on core insurance businesses.The deal is projected to
have a positive impact on non-operating pre-tax gain worth $2.2
billion in second-quarter 2014, resulting in a book value accretion
of $0.97 per share.
The company's aggressive liability management initiatives are
also aiding improvements in operating cash flow and debt leverage.
Going forward, we expect the company to benefit from its scale of
operations, pricing improvements and disciplined expense management
from the ongoing operational restructuring, thereby creating a more
Overall, a balanced risk-reward balance in the near term caused
some revision of estimates for 2014 and 2015 over the past 30 days.
The Zacks Consensus Estimate for 2014 moved north by a cent to
$4.39 per share, while the same for 2015 is pegged at $4.92, down 1
cent a share. On year-over-year basis, earnings are expected to
fall by 3.7% in 2014 and then grow by 12.1% in 2015.
Key Picks in the Sector
Some better-ranked stocks in the insurance sector include
Old Republic International Corp.
AmTrust Financial Services Inc.
Radian Group Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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AMER INTL GRP (AIG): Free Stock Analysis Report
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