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AIG Maintained at Neutral - Analyst Blog
4/17/2013 1:51:00 PM
On Apr 16, we reiterated our Neutral recommendation on American international Group Inc. ( AIG ) based on its newly attained capital independence and improved core operating structure. However, this is partly offset by higher operating and other expenses along with macro-economic challenges.
Why the Retention?
Estimates for this global life and property-casualty insurer witnessed minor corrections since the company reported its fourth-quarter 2012 results on Feb 21. AIG's fourth-quarter earnings per share of 20 cents topped the Zacks Consensus Estimate of a loss of 9 cents. However, earnings were significantly lower than 77 cents recorded in the year-ago quarter.
The year-over-year decline reflected a 3.2% fall in revenue driven by lower premiums and deposits. Alongside, pre-tax catastrophe losses of $2 billion raised benefits and claims, leading to a deteriorated combined ratio.
Yet, higher value business, improvement in pricing trends, strong underwriting margins, higher profitability in Direct Investment Book (DIB) and higher investment income became the earnings growth drivers. Overall, AIG delivered positive earnings surprises in all of the last 4 quarters with an average beat of 119.6%.
Going ahead, stable ratings, improved operating cash flow, book value, return on equity and capital position bode well for long-term growth. The complete repayment of government bailout loan along with AIG's efforts to de-risk business by focusing on core operations appear conducive for dealing prudently with the macro-economic challenges.
Following the release of the fourth-quarter results, the Zacks Consensus Estimate for 2013 inched up 1.2% to $3.39 per share in the last 30 days. Conversely, the Zacks Consensus Estimate for 2014 edged down 0.5% to $3.95 per share in the last 30 days. With the Zacks Consensus Estimates for both 2013 and 2014 exhibiting no clear directional pressure in the near term, AIG now has a Zacks Rank #3 (Hold).
Other Financial Stocks That Warrant a Look
While AIG tends to stay in the neutral lane in the near term, other stocks in the insurance sector that are outperforming include Markel Corp. ( MKL ), Everest Re Ltd. ( RE ) and CNO Financial Group Inc. ( CNO ).All these stocks carry a Zacks Rank #1 (Strong Buy).
AMER INTL GRP (AIG): Free Stock Analysis Report
CNO FINL GRP (CNO): Free Stock Analysis Report
MARKEL CORP (MKL): Free Stock Analysis Report
EVEREST RE LTD (RE): Free Stock Analysis Report
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