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How Discounted Valuations Affected AIG in 3Q17

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Aug. 18 2020, Updated 6:13 a.m. ET

Lower valuations

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.

Among AIG’s peers (XLF), Hartford Financial Services (HIG), Travelers Companies (TRV), and Aflac (AFL) posted price-to-earnings ratios of ~14.5x, ~14.2x, and ~12.2x, respectively, on an NTM basis.

AIG’s weak 3Q17 results could have contributed to its discounted valuations. The declining trend in its EPS (earnings per share) estimates for 4Q17 was a cause of some concern. To rectify this trend, the company could increase its quarterly payout, which has remained constant during the past few quarters.

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Favorable outlook and price target

American International Group (AIG) could recover from its discounted valuations as it has raised its rates, which could act as a tailwind on the company’s margins. The recent interest rate increase by the Federal Reserve could also prove beneficial for the company with respect to its investment yields.

Property and casualty insurance companies are expected to witness strong growth in 2018 on the back of premium increases. However, analysts have given a one-year price target of $66.63 per share on AIG from the current market price of $59.78 per share. This trend implies an increase of ~11.5%.

AIG has a price-to-book ratio of 0.74x on an LTM (last-12-months) basis. Among its peers, Travelers Companies (TRV), Hartford Financial Services (HIG), and Aflac (AFL) reported price-to-book ratios of ~1.6x, ~1.2x, and ~1.6x, respectively, on an LTM basis.

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