Is American International Group Stock Fairly Priced?

+15.56%
Upside
61.69
Market
71.29
Trefis
AIG: American International Group logo
AIG
American International Group

American International Group’s stock (NYSE: AIG) has gained 6% YTD, while the S&P500 is down 16% over the same period. Further, at its current price of $60 per share, it is trading 15% below its fair value of $71 – Trefis’ estimate for American International Group’s valuation

The company posted mixed results in the third quarter of 2022, with earnings beating the consensus but revenues missing the street expectations. The total revenues increased 14% y-o-y to $14.6 billion. It was driven by a 4% rise in premiums and a significant jump in the total net realized gains from $660 million to $3.2 billion. Notably, the premiums mainly benefited from growth in the life insurance and institutional markets units. That said, the net investment income (NII) decreased 28% y-o-y in the quarter, primarily due to lower returns from alternative investments and a drop in the fair value of fixed maturity securities. Overall, the adjusted net income grew 63% y-o-y to $2.7 billion. It was partly because of the revenue growth and partly due to lower expenses as a % of revenues.

The top line grew 18% y-o-y to $44.85 billion in the first nine months of 2022. It was mainly due to a change in total net realized gains from $1.98 billion to $10.99 billion, partially offset by a 23% y-o-y drop in NII. On the expense front, total expenses as a % of revenues decreased from 81% to 69% over the same period. This led to a 78% rise in adjusted net income to $9.98 billion.

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Moving forward, we forecast the American International Group revenues to remain around $57.1 billion in FY2022. Additionally, AIG’s adjusted net income margin is likely to decrease from 18% to around 10%, leading to an adjusted net income of $5.9 billion. This coupled with an annual EPS of $7.50 and a P/E multiple of just below 10x will lead to a valuation of $71.

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 Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 AIG Return 6% 6% -8%
 S&P 500 Return 3% -16% 78%
 Trefis Multi-Strategy Portfolio 8% -16% 231%

[1] Month-to-date and year-to-date as of 11/14/2022
[2] Cumulative total returns since the end of 2016

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