American International Group Stock To Pass The Street Expectations In Q1?

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American International Group

American International Group (NYSE: AIG) is scheduled to report its fiscal Q1 2022 results on Tuesday, May 3, 2022 (after market close). We expect AIG to beat the consensus estimates for revenues and earnings. The insurance giant reported better than expected results in the last quarter, with the top-line increasing 46% y-o-y to $14.1 billion. This could be attributed to a 33% y-o-y increase in the premiums, partially offset by a 10% drop in the net investment income (NII). The premiums grew 189% y-o-y to $2.7 billion in the life & retirement division driven by higher pension risk transfer sales in the quarter. It was followed by a 7% y-o-y rise in net written premiums in the general insurance segment to $5.6 billion. Further, total net realized gains (losses) improved from -$2.3 billion to $167 million in the quarter. On the flip side, the NII primarily suffered because of lower returns from fair value option equity and fixed income securities, partially offset by strong income from private equity. We expect the revenues to follow the same trend in the first quarter.

Our forecast indicates that  American International Group’s valuation is $69 per share, which is 16% more than the current market price of around $59. Our interactive dashboard analysis on American International Group’s Earnings Preview has more details. 

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(1) Revenues expected to top the consensus estimates

American International Group’s revenues increased 19% y-o-y in 2021 to $52.1 billion. It was because of a 10% y-o-y growth in the premiums and a 7% rise in the net investment income (NII).

  • The total premium figure improved 10% y-o-y in 2021, primarily driven by a 6% increase in the general insurance and a 30% jump in the life & retirement divisions. While both the North America and international sub-segments of the general insurance unit posted growth, life & retirement mainly benefited from growth in the institutional markets category. We expect the same momentum to continue in the first quarter.
  • NII is very important for the profitability of any insurance company, and AIG is no different. The revenue stream suffered in 2020 due to low investment yields. However, it posted a 7% y-o-y increase in 2021, primarily driven by higher returns from the private equity portfolio. Further, the Fed has increased the interest rate by a quarter percentage point in the first quarter, which is likely to have a positive impact on NII.
  • Overall, we expect AIG’s revenues to remain around $51.8 billion for FY2022.

Trefis estimates AIG’s fiscal Q1 2022 revenues to be around $12.28 billion, 5% above the $11.65 billion consensus estimate. We expect the growth in the general insurance division and net investment income to drive the first-quarter results.

After almost two years of the zero-rate policy, the Federal Reserve slightly increased the interest rate in March 2022. It is expected to be followed by multiple rate hikes in the year, benefiting the NII. Further, the improvement 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 beat the consensus estimates

AIG Q1 2022 adjusted earnings per share (EPS) is expected to be $1.27 per Trefis analysis, beating the consensus estimate of $1.18 by 8%. The company’s adjusted net income significantly improved in 2021 – from -$6 billion to $9.4 billion. It was partly due to growth in the top line and partly due to a decrease in total benefits, losses, & expenses as a % of revenues from 117% to 77%. We expect the same trend to continue in the first quarter. Overall, AIG is likely to report an annual GAAP EPS of $6.98 for FY2022.

(3) Stock price estimate is 16% more than the current market price

We arrive at  American International Group’s valuation, using a GAAP EPS estimate of around $6.98 and a P/E multiple of just below 10x in fiscal 2022. This translates into a price of $69, which is 16% more than the current market price of approximately $59. 

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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 Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 AIG Return -6% 4% -9%
 S&P 500 Return -8% -12% 86%
 Trefis Multi-Strategy Portfolio -9% -16% 231%

[1] Month-to-date and year-to-date as of 4/28/2022
[2] Cumulative total returns since the end of 2016

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