Should You Buy the Dip in American International Group?

Diversified insurance provider American Insurance Group, Inc. (AIG) is scheduled to release its second-quarter (ended June 2021) results after the market closes today. Though analysts expect the company’s earnings to have improved 77.3% for the quarter due to improved retention and higher rates, its revenues are expected to have declined 2.5% year-over-year. The unfavorable investor sentiment surrounding this stock is evident in its 2% decline over the past month.

On July 16, AIG sold its AIG Life and Retirement’s Retail Mutual Funds business, with assets worth $6.80 billion, to Touchstone Investments. AIG announced its plans to sell its subsidiary in February, saying the unit was no longer aligned with its core offerings. And on July 15, AIG sold a 9.9% stake in its Life and Retirement business to Blackstone Group for $2.20 billion. AIG also entered into a long-term strategic asset management relationship with Blackstone, under which the latter is expected to manage $50 billion of AIG’s existing investment portfolio. The total assets managed are expected to increase to $92.50 billion over the next six years.

Regarding this, AIG President and CEO Peter Zaffino said, “Establishing a cornerstone partnership on several fronts with such a highly regarded organization as Blackstone validates the strength of our market-leading Life & Retirement business and provides it with additional growth opportunities, provides AIG with flexibility as we continue to work to separate Life & Retirement from AIG, and results in significant new capital for AIG to deploy to support our capital management priorities.”

Mixed Financials

AIG has generated $43.16 billion in revenues over the past year. Its trailing-12-month gross profit came in at $12.35 billion, translating to a 28.62% margin However, the company’s gross profit margin is 53.5% lower than the 61.55% industry average.

Its operating income and EBITDA stood at $4.44 billion and $8.10 billion, respectively. Nonetheless, AIG’s bottom line has remained in the red over the past year. Its net loss came in at $3.82 billion. In addition, the company’s ROE and ROA stood at negative 6.32% and 0.65%, respectively.

Consensus Rating and Price Target Indicate Slight Upside

Of the 10 Wall Street analysts that rated the stock, four rated it Buy while six rated it Hold. The $53.78  12-month median price target indicates a 14.2% potential upside from yesterday’s $47.09 closing price. The price targets range from a low of $47.00 to a high of $60.00.

POWR Ratings Reflect Uncertain Prospects

AIG has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Stability and Value. AIG’s relatively high 1.35 beta justifies the Stability grade. Also, the stock’s slightly discounted valuation is in sync with the Value grade. Its 10.43 non-GAAP forward P/E ratio is 3.1% lower than the 10.76 industry average.

Of the 55 stocks in the C-rated Insurance – Property & Casualty industry, AIG is ranked #25.

Beyond what we’ve stated above, we have rated AIG for Quality, Momentum, Sentiment, and Growth. Get all AIG ratings here.

Click here to view the top-rated stocks in the Insurance – Property & Casualty industry.

Bottom Line

With an enterprise value of more than $75 billion, AIG is an established insurance provider in the United States. However, we think investors should wait until AIG’s financials improve before investing in the stock.

AIG shares were trading at $48.28 per share on Thursday afternoon, up $1.19 (+2.53%). Year-to-date, AIG has gained 29.17%, versus a 18.60% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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