American International Group (NYSE: AIG) is scheduled to report its fiscal Q4 2021 results on Wednesday, February 16, 2022 (after market close). We expect AIG to underperform the consensus estimates for revenues and earnings. The insurance giant reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y to $12.8 billion. The growth was because of a 12% increase in the total premiums, followed by a significant jump in total net realized gains (losses) from -$1.1 billion to $660 million. Further, the adjusted net income increased almost 5x to $1.6 billion in the quarter, thanks to a favorable decrease in total benefits, losses, & expenses as a % of revenues from 96% to 83%. We expect the revenues to follow the same pattern in the fourth quarter.
Our forecast indicates that American International Group’s valuation is $60 per share, which is at the same level as the current market price of around $60. Our interactive dashboard analysis on American International Group’s Earnings Preview has more details.
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(1) Revenues expected to be slightly below the consensus estimates
American International Group’s revenues decreased 12% y-o-y in 2020 to $43.7 billion. It was because of a 7% y-o-y drop in both the premiums and net investment income (NII).
- Insurance premiums generate the majority of the revenues for any insurance company – AIG derives close to 60% from premiums. The total premium figure declined 7% y-o-y in 2020 due to the impact of the Covid-19 crisis. The effect was primarily felt in the travel category and personal & commercial lines categories of the general insurance segment. That said, the premiums have seen some recovery in the first three quarters of 2021. Notably, the cumulative nine-month figure improved 2% y-o-y to $21.9 billion. It was primarily due to a 5% growth in the general insurance segment, partially offset by an 11% drop in the life & retirement results. We expect the same trend to continue in the fourth quarter.
- AIG drives approximately 30% of the total revenues from NII, which suffered in 2020 due to low investment yields. That said, the trend reversed over the first three quarters of 2021, with the cumulative figure increasing by 14% y-o-y to $11 billion. It was mainly due to higher returns from the private equity portfolio. We expect the same momentum to continue in the fourth-quarter results.
- Overall, we expect AIG’s revenues to touch $49.3 billion for FY2021.
Trefis estimates AIG’s fiscal Q4 2021 revenues to be around $11.3 billion, 2% below the $11.8 billion consensus estimate. We expect the growth in the general insurance division and net investment income to drive the fourth-quarter results.
The Federal Reserve is expected to hike interest rates multiple times in 2022. It will benefit the investment yields and, in turn, the NII. Further, the recovery in the economy is likely to boost the total premiums. Our dashboard on American International Group’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
2) EPS is likely to miss the consensus estimates
AIG Q4 2021 adjusted earnings per share (EPS) is expected to be $1.07 per Trefis analysis, missing the consensus estimate of $1.19 by 10%. The company’s profitability numbers suffered a major drop in 2020 – from $3.3 billion to -$6 billion, due to an increase in total benefits, losses, & expenses as a % of revenues from 89% to 117%. That said, the adjusted net income improved over the first three quarters of 2021, driven by lower expense figures. Notably, the cumulative nine-month adjusted net income was around $5.6 billion. We expect the same trend to continue in the fourth quarter. Overall, AIG is likely to report an annual GAAP EPS of $4.43 for FY2021.
(3) Stock price estimate at par with the current market price
We arrive at American International Group’s valuation, using a GAAP EPS estimate of around $4.43 and a P/E multiple of just below 14x in fiscal 2021. This translates into a price of $60, which is at the same level as the current market price of approximately $60.
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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