Bullish Barron's writeup for AIG

"We feel like a start-up company with 64K employees," AIG chief Bob Benmosche tells Barron's. Up 57% since the start of 2012 vs. a 29% gain for the S&P 500, AIG - writes the magazine's Jack Hough - has plenty of room to run and could double in the next five years.

The key is valuation - at just 0.76x book value, AIG trades at a significant discount to peers thanks to far lower ROE. One reason: Roughly one-third of AIG's $100B in equity consists of "financial-crisis leftovers, rather than productive operating capital," writes Hough. Among these items are $10B-$15B of derivatives which have been heavily marked down, are recovering, and set to expire over the next four to five years, $20B in DTAs which will gradually convert to cash as profits grow, and ILFC, whose sale for $6B should close in Q2.

As all that capital frees up, expect it to be used for dividends and share repurchases. AIG recently hiked the dividend and now yields about 1%, but Benmosche prefers buybacks as long as the stock trades so far below book.

Speaking of Benmosche, it's likely he retires over the next year. Shareholders may miss him, but Bernstein's Josh Stirling says it's a good sign: "We just can't think of a turnaround CEO in insurance who left before their story had fully inflected, and left the fate of their legacy in the hands of their successor."

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Comments (11)
  • campito
    , contributor
    Comments (132) | Send Message
    Key issues to follow up the following quarters:


    1) Combined ratios below 100 and improving
    2) Closing the ILFC transaction and subsequent buyback
    3) if 1) and 2) come to fruition and you are long AIG be patient, enjoy the ride and get rich
    26 Apr 2014, 10:06 AM Reply Like
  • Matthew Mazurczak
    , contributor
    Comments (1486) | Send Message
    Future looks bright. Holding warrants and selfishly hoping div above $.17/Q starts sooner then later.


    The 6B windfall coming should help both buybacks and divs.
    26 Apr 2014, 11:07 AM Reply Like
  • TippingPoint
    , contributor
    Comments (166) | Send Message
    The bonds or preferreds might be interesting.....I don't like the common because as a SIFI they won't be able to offer shareholders much of a return.....better opportunities elsewhere. SIFIs will be like regulated utilities---that seems to be the philosophy of Gubbermint regulators and it's what Pocahontas of Massachusetts wants.
    26 Apr 2014, 11:51 AM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
    All due respect to Jack Hough, but I don't buy the 5 year thing....
    With underwriting improvements, release of "trapped capital", market expansion, new products, benefits of data analytics, resolution of the discount to its peers, sale of ILFC, share repurchases, dividend hikes, and hopefully a good follow up to Mr. Benmosche, I'm much more optimistic than a mere 100% in 5 years, as a longer term trajectory. We'll see.
    26 Apr 2014, 04:26 PM Reply Like
  • Rhinoish
    , contributor
    Comments (125) | Send Message
    lol, I was thinking the same thing as I read my barron's this morning
    26 Apr 2014, 08:04 PM Reply Like
  • sheppner
    , contributor
    Comment (1) | Send Message
    Earnings May 5th., this needs to exceed expectations, as last qtr. was a disappointment, hence a key contributor to the stock doing nothing over the last six months +
    26 Apr 2014, 08:39 PM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
    A pattern...
    Bernstein also predicted a double, on April 3.
    26 Apr 2014, 08:56 PM Reply Like
  • manfredthree
    , contributor
    Comments (3154) | Send Message
    Remarkably, nobody is talking about pricing power, but AIG is in a good position here. There's a lot to drive leverage profit, which is why we feel the "book value" discussion really understates AIG's most significant strength. As benmosche pointed out, the SIFI noise is more of a distraction than anything, as profits will drive buybacks. At these bargain prices, stock buybacks make a lot more sense than dividends.
    26 Apr 2014, 09:00 PM Reply Like
  • NicolasD
    , contributor
    Comments (23) | Send Message
    I agree AIG like many insurers has no real pricing power... but AIG has not LESS pricing power while its valuations are far lower than other insurers.


    Do the math.
    29 Apr 2014, 11:11 AM Reply Like
  • JamesJoyce
    , contributor
    Comments (154) | Send Message
    Really there are other competent managers out there.


    There often seems to be a semi hysterical concern that the Chief exec of a company departing, will be calamitous.


    It's an emotional response that is present in discussions around Jamie Dimon too.


    I think folks need to remember some things. They're good CEOs but also clay-feeted, non-super humans. There are other managers just as good itching to take a shot in the top spot.


    (This second point particularly pulls the rug from beneath the insane pay deals scored by senior managers.)


    It's as if familiarity with the boss breeds in shareholders, some kind of dependency relationship. And, just as a battered spouse cannot quite bring themselves to leave the marriage, some shareholders (and commentators) have difficulty imagining life beyond an incumbent CEO.


    Benmoche is good, not irreplaceable.
    27 Apr 2014, 03:42 AM Reply Like
  • Investing Crunch
    , contributor
    Comments (53) | Send Message
    AIG is the most undervalued out of all the insurers. Once they get the opportunity to disburse their capital, investors will rejoice. I believe it will be trading in the 70's in 2 years - http://bit.ly/1tSZm6t
    27 Apr 2014, 10:49 PM Reply Like
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