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American International Group, Inc. AIG is well-poised for growth on the back of a well-performing General Insurance segment, strong private equity returns and favorable underwriting performance. Divestitures aimed at intensifying the company’s focus on core insurance operations and a strong financial position are other highlights of the stock.
Zacks Rank & Price Performance
AIG carries a Zacks Rank #2 (Buy), at present.
The stock has soared 94.2% in a year, outperforming the industry’s and the Finance sector’s rally of 41.4% and 40.5%, respectively. The S&P Index climbed 36.8% in the same time frame.
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The company has an impressive Growth Score of B, which reinstates the future growth prospects of a company. Back-tested results have shown that stocks with a favorable Growth Score, when combined with a solid Zacks Rank, consistently outperform the market and fetch better returns.
The Zacks Consensus Estimate for the company’s 2021 earnings indicates a surge of 93.3% from the prior-year’s reported figure.
Positive Estimate Revision
The Zacks Consensus Estimate for 2021 earnings has moved north by 1% in the past 60 days.
Impressive Earnings Surprise History
AIG beat earnings estimates in three of the trailing four quarters and missed once, the average surprise being 15.09%.
Price-to-book (P/B) is one of the multiples used for valuing insurance stocks. Compared with the multiline industry’s trailing 12-month P/B ratio of 1.6, AIG has a reading of 0.7. It is quite evident that the stock is currently undervalued.
The company’s revenues, after remaining under pressure for quite some time, witnessed an uptick in the first half of 2021. Rate increases, new business generation and high retention rates across Commercial and Personal lines of business continue to drive the General Insurance segment. The segment’s combined ratio improved in second-quarter 2021 on the back of premium growth and better expense ratio. The improvement marked the 12th consecutive quarter of improvement. Management remains optimistic about the General Insurance segment attaining below 90% combined ratio figure, excluding catastrophe losses, within 2022-end.
The investment portfolio of AIG generated solid private equity returns, thereby resulting in growth of 24.8% in net investment income in the first half of 2021. Strong performance of the company’s investment portfolio is noteworthy as a low interest rate environment prevails throughout the United States.
AIG intends to utilize capital for pursuing possible buyouts in international markets with an aim to strengthen the company's personal business stream. It continues to invest to establish a presence in the domestic middle market.
The company has been undertaking divestitures to focus on core insurance businesses (General Insurance) and eliminate underperforming ones. In July 2021, AIG inked a deal with Blackstone to sell 9.9% equity stake in the former's Life and Retirement Unit for $2.2 billion. With the separation of the Life and Retirement segment and the capital generated from the same, the company will focus on paying down debt and investing in growth-related initiatives. Besides, it remains well on track to achieve run rate savings of $1 billion by the end of next year. Favorable underwriting actions and cost-reducing initiatives keep management optimistic about earned margin expansion throughout 2021 and 2022 as well.
AIG boasts of a strong liquidity position backed by a solid cash balance and reducing debt level. The company has robust cash generation abilities through which it constantly engages in prudent deployment of capital via share buybacks and dividend payments. Its leverage ratio has been improving. Per its last earnings call, the company plans to pay off debts of $2.5 billion in the remainder of 2021.
Other Stocks to Consider
Some other top-ranked stocks in the same space include CNO Financial Group, Inc. CNO, Horace Mann Educators Corporation HMN and Old Republic International Corporation ORI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CNO Financial, Horace Mann and Old Republic have a trailing four-quarter earnings surprise of 26.12%, 21.12% and 59.51%, on average, respectively.
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American International Group, Inc. (AIG) : Free Stock Analysis Report
CNO Financial Group, Inc. (CNO) : Free Stock Analysis Report
Old Republic International Corporation (ORI) : Free Stock Analysis Report
Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report
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