Up 14% In The Last Twelve Months, What To Expect From American International Group Stock In Q4?

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American International Group

American International Group (NYSE: AIG) is scheduled to report its fiscal Q4 2023 results on Tuesday, February 13, 2024 (after market close). We expect AIG to outperform the consensus estimates. The insurance giant posted mixed results in the last quarter, with revenues missing expectations but earnings beating the mark. It reported total revenues of $12.78 billion, which was 9% less than the year-ago figure. It was primarily because of lower premiums and a drop in total net realized gains. We expect the revenues to see year-on-year growth in Q4. Our interactive dashboard analysis on American International Group’s Earnings Preview has more details. 

Amid the current financial backdrop, AIG stock has seen extremely strong gains of 75% from levels of $40 in early January 2021 to around $70 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. AIG is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 50% in 2021, 11% in 2022, and 7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that AIG underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AIG face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that  American International Group’s valuation is $78 per share, which is 12% more than the current market price. 

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(1) Revenues expected to edge past the consensus estimates

American International Group’s revenues decreased 13% y-o-y to $36.98 billion in the first nine months of 2023. 

· The total premium figure improved 10% y-o-y in the first three quarters of 2023. We expect it to see some growth in Q4. 

· Net investment income (NII) increased 25% y-o-y over the same period. We expect the Q4 results to be on similar lines.

· Total net realized gains decreased from $8.8 billion to -$1.1 billion. The same trend is likely to continue in Q4.

· Overall, we forecast AIG’s GAAP revenues to remain around $49.89 billion in FY2023.

Trefis estimates AIG’s fiscal Q4 2023 revenues to be around $12.91 billion, 3% above the $12.51 billion consensus estimate. 

(2) EPS is likely to beat the consensus 

AIG Q4 2023 adjusted earnings per share (EPS) is expected to be $1.72 per Trefis analysis, 5% above the consensus estimate of $1.64. The adjusted net income decreased 63% y-o-y to $3.5 billion in the first three quarters of 2023, primarily due to lower revenues and a 9% rise in expense figures. We expect the net income margin to see some improvement in Q4. Altogether, AIG is likely to report an annual GAAP EPS of $6.68 for the full year FY2023.

(3) The stock price estimate is 15% more than the current market price

We arrive at  American International Group’s valuation, using a GAAP EPS estimate of around $6.68 and a P/E multiple of just below 12x in fiscal 2023. This translates into a price of $78, which is 12% more than the current market price. 

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 

 Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 AIG Return 0% 10% 7%
 S&P 500 Return 4% 31% 124%
 Trefis Reinforced Value Portfolio 4% 43% 633%

[1] Returns as of 2/13/2024
[2] Cumulative total returns since the end of 2016

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