American International Group (NYSE: AIG) is scheduled to report its fiscal Q2 2021 results on Thursday, August 5 (after the market closes). We expect AIG to report mixed results, with revenues beating expectations and earnings missing the mark. The insurance giant outperformed the consensus estimates in the first quarter of 2021, although its revenues were at the same level as the year-ago period. While the company reported a significant increase in its net investment income, it was offset by lower premiums and a decrease in the net realized capital gains on a year-on-year basis. That said, AIG did report improvement in its profitability figures in the quarter driven by lower expenses. We expect the same trend to drive the second-quarter results.
Our forecast indicates that American International Group’s valuation is around $53 per share, which is 10% above the current market price of around $48. Look at our interactive dashboard analysis on American International Group’s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be ahead of consensus estimates in Q2
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Despite stagnant revenues, AIG’s adjusted net income improved by 122% in the quarter from $1.7 billion to $3.9 billion, mainly driven by lower total benefits, losses, and expenses.
Trefis estimates American International Group’s fiscal Q2 2021 revenues to be around $11.55 billion, 3% above the $11.25 billion consensus estimate. The company reported total revenues of $43.7 billion in 2020 – down 12% y-o-y. It was due to lower premiums and a drop in net investment income. While the premiums were down due to the impact of the Covid-19 crisis – especially in the travel category and personal & commercial lines of the general insurance segment, the net investment income suffered because of lower investment yields. Further, the premiums followed the same trend in the first quarter of 2021, also. However, the net investment income increased 46% y-o-y. We expect the premiums to see some improvement in the second quarter, which coupled with the growth in the net investment income, will drive Q2 results.
The premiums are likely to recover in FY2021, with some improvement in the economic conditions. Further, the investment yields, though expected to improve in the year, are still likely to remain below the pre-Covid-19 levels for some more time. However, the growth in invested assets will likely offset its negative effect, benefiting the net investment income. Overall, American International Group’s revenues are likely to touch $47.1 billion in FY2021. Our dashboard on American International Group’s revenues offers more details on the company’s segments.
(2) EPS likely to miss the consensus estimates
American International Group’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, almost 10% below the consensus estimate of $1.17. The company’s adjusted net income declined from $3.3 billion to -$5.9 billion in 2020, mainly due to an increase in operating expenses as a % of revenues from 89.4% to 116.7%. That said, AIG’s profitability figures improved in the first quarter of 2021. Its adjusted net income increased 122% in the quarter to $3.9 billion, mainly driven by lower total benefits, losses, and expenses. We expect the same trend to govern the second-quarter results.
American International Group’s adjusted net income margin is likely to recover from -13.7% in 2020 to 5.7% in FY2021, primarily due to lower operating expenses. Overall, this will enable AIG to report an EPS of around $3.05 in the current year.
(3) Stock price estimate 10% more than the current market price
Going by our American International Group’s valuation, with an EPS estimate of around $3.05 and a P/E multiple of just above 17x in fiscal 2021, this translates into a price of $53, which is 10% above the current market price of around $48.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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