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Summary

  • AIG delivered a stellar quarter, reporting EPS of $1.25 on revenue of $8.53 billion. Analysts expected EPS of $1.05 on revenue of $7.72 billion.
  • This positive quarterly report cements my conviction in AIG's turnaround.
  • In my previous article, I discussed how AIG was positioned to outperform.

After hours Monday, American International Group Inc (NYSE:AIG) delivered an exceptionally positive quarterly report. AIG was able to handily beat both top and bottom-line analyst estimates, as it continues to recover from the doldrums of the Great Recession. Each segment experienced a positive quarter. Property and Casualty saw higher profits despite lower interest income due to depressed interest rates. With rates set to rise next year, AIG will benefit greatly. In his last quarterly report announcement before he leaves in September, CEO Bob Benmosche summed up the quarter well:

We are pleased with the strong performance across all of our Property Casualty, Life and Retirement and Mortgage Guaranty businesses. Our operating results demonstrate our continued progress, and it was another very active quarter for capital management activities. [Source: Press Release]

Even after this positive report, AIG still trades at a substantial discount to book value. Book value grew 15% y/y to $75.51. In normalized times, AIG trades at a premium to book value, so more upside is likely. Further, AIG is returning capital to investors through both dividends and share repurchases. During the quarter, management repurchased $1.1 billion in shares, and authorized another $2 billion. AIG also recently expanded their dividend to $0.125 per share. Another positive worth mentioning is that AIG settled for $960 million in a class action lawsuit for misleading investors. AIG is finally putting the mess created by the financial crisis in the rearview mirror.

In my previous article "AIG: The Bull Market Forgot This One," I opined that the streamlining of its business through divestitures would allow AIG to outperform. A major reason for the turnaround was divesting of non-core business assets to become a leaner company. During the quarter, AIG completed this process with the sale of their ILFC business to AerCap for $7.6 billion. Moreover, AIG is improving profitability by reducing total debt. AIG has been redeeming a substantial portion of debt, which will mitigate interest expenses. Investors should rejoice as AIG has improving business fundamentals coupled with substantial returns of capital. Even though AIG has traded up since my first article, it is still egregiously undervalued.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: AIG Crushes Earnings