uploads///Valuations

Why AIG’s Stock Has Risen

By

Dec. 30 2016, Updated 11:35 a.m. ET

Stock rises

American International Group’s (AIG) stock has risen more than 14% and 31% over the past three and six months, respectively. The rise has been mainly due to improved performance on alternate investments, a rise in personal insurance and property and casualty insurance, and reversal of reserve developments. In 3Q16, AIG saw sequential as well as year-over-year improvement in operating income on a growth in consumer insurance underwriting. The company saw higher investment income as the performance of hedge funds improved in the broad markets.

Valuations

AIG’s shares appear to be fairly valued due to a strong pullback in the stock prices in line with an improved operating performance. Activist investor Carl Icahn suggested a breakup of the company into three parts in a bid to improve operational efficiencies and valuations. However, management is of the opinion that it would lead to higher costs, as all the businesses are integrated. The company’s size and SIFI (systematically important financial institution) tag has resulted in higher costs.

In 4Q16, AIG is expected to post earnings per share of $1.18 in 4Q16 and $5.72 in 2017, reflecting strong growth due to improved operating efficiencies and return on alternate investments.

On the valuation front, AIG is trading at a one-year forward price-to-book multiple of 0.8x compared to 1.1x for its peers.

AIG is trading lower than other insurers like MetLife (MET), Hartford Financial (HIG), and Chubb (CB). It’s trading at a one-year forward price-to-earnings ratio of 12.3x compared to the industry’s ratio of 11.0x for the same period.

Investors can gain exposure to the insurance space by considering the Financial Select Sector SPDR ETF (XLF) and the iShares US Financials ETF (IYF).

Article continues below advertisement
Advertisement

More From Market Realist

  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.