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Update: AIG - Laya Healthcare Acquisition Setting The Tone For 2015?
- American International Group is set to acquire Ireland's Laya Healthcare, but deal terms were not disclosed.
- AIG going into acquisition mode could be a vital catalyst for shares in 2015.
- Transaction highlights AIG's ambitions to grow internationally and create value for shareholders via acquisitions.
- AIG remains hopelessly undervalued.
AIG: Industry Leading Insurer At 32% Discount To Fair Value
- AIG's share price is trading at a 32% discount to its book value, we believe its fair value is at least its book value.
- AIG has made steady progress deleveraging its balance sheet since the crisis and its equity-to-assets ratio is double its pre-crisis high, which gives it a very conservative balance sheet.
- AIG has steadily been returning capital to its shareholders since 2012.
- We expect AIG to raise its dividend per share by at least 20% next year.
- We think potential value exists if AIG split itself into two companies focused on life insurance, and property/casualty operations rather than remaining together under one corporate conglomerate.
- AIG is a fundamentally different company than it was leading up to and during the financial crisis.
- The earnings power of AIG going into the future is being underestimated by the market.
- AIG is one of the cheapest stocks in the market today, trading at a low PE, and well under book value. Now may be the time to consider AIG.
- AIG reported a solid Q3, with earnings exceeding analyst estimates.
- BV showed a solid 15% increase over last year's numbers, supported by a stock buyback program.
- The stock continues to trade substantially below BV, including investments and deferred tax assets suggesting a stronger buyback program.
- The Net Payout Yields aren't strong enough for an investment.
AIG - Large Discount To Intrinsic Value, P&C Business Needs To Deliver
- AIG continues to exhibit improving performance and a strongfinancial position, which is underappreciated by the market.
- . The company has also been aggressively payingdown higher cost debt and replacing it with lower cost debt to reducenet interest costs, which will help coverage ratios.
- I expect the combination of prudent capitalallocation and improved profitability, to lead to a higher multiple onthis growing book value.
- AIG recorded revenues of $8.6 billion with earnings of $1.09 per share during its third quarter. Following the strong results the company authorized share repurchases of $1.5 billion.
- The company improved performance across core segments and consequently noted an operating income of $1.75 billion, up by a significant margin of 22.8% from last year.
- The net earnings stood at $2.2 billion for the quarter as the company announced a 12.5 cents per share dividend.
- Net investment income grew by 13% to $4.03 billion. This was due to an increase in returns from hedge funds and private equity investments.
- AIG is proving itself to be the powerhouse that investors have expected it to be in the past as the company has its growth prospects intact for the future.
Update: AIG Warrants Still A Better Option Than Common Shares
- Back in June, I determined that the AIG Warrants were more compelling than the common shares using very conservative assumptions.
- Since then, AIG has reported good numbers, and bought back a lot of stock. Meanwhile the share price and warrant price have both lagged.
- This all makes the opportunity even better than before.
American International Group: This Ridiculous Valuation Won't Last Forever
- AIG reported great third quarter results with both premium and earnings momentum.
- Book value per share grew more than 15% year-over-year, and the company aggressively bought back its own shares.
- Still, investors don't seem to care.
- AIG's valuation discount is completely undeserved.
- Don't give up just yet.
- AIG, one the great turnaround stories of the last decade, is often cited as a strong financial stock.
- However, while book value is rising consistently, earnings growth is expected to slow down.
- Its low valuation could propell the stock higher, although competitor Allianz is valued similarly.
- AIG blew away investors with its third quarter report on Monday, a scenario that has played out before.
- Analysts are far too pessimistic on AIG, actually lowering earnings estimates since the second quarter report.
- Strong fundamentals, share repurchases and a terrific valuation make AIG a buy here.
- AIG reported better than expected earnings, beating on both the top and bottom lines.
- This positive quarter has cemented my bullish outlook on AIG.
- I previously discussed how management would improve profitability and grow book value per share.
American International Group: Excellent Book Value Growth, Low Valuation, High Risk/Reward Ratio
- American International Group's share price performance has been disappointing.
- AIG, however, presented respectable book value growth over the last three financial years and exhibited continued momentum in the first six month of 2014.
- Low valuation is still a compelling argument to buy one of the largest insurance companies in the country.
- Higher interest rates could provide tailwinds for AIG's investment income and be a catalyst for higher share prices.
American International Group: A Deep-Value Insurance Investment With Massive Potential
- American International Group still trades at an extremely low valuation compared to its book value and compared to its peers.
- Narrowing the gap between book value and share price likely to be a multi-year story.
- AIG offers investors a massive margin of safety, and remains a Strong Buy for investors capable of playing the patience game.
AIG: How Will The Shift In Focus Influence Investors' Decision To Buy, Sell Or Hold?
- Deutsche Bank rated AIG a "hold" in August and set its share target price at $59.00.
- The company's after-tax operating income was $1.8 billion while in the corresponding quarter of the last year it stood at $1.7 billion.
- After-tax EPS amounted to $1.25 for Q2 2014, whereas in Q2 2013, the company reported an after-tax EPS of $1.12.
- New CEO, Peter Hancock, is altering the business mix of the company and encouraging the use of technology to boost efficiency.
- Analysts predict a median target price of $60.50.
- First we'll explore the features that AIG warrants offer investors, including the exercise price, expiration date, and adjustment formulas.
- Since the warrants are obviously dependent upon the underlying security, we'll walk through a valuation of AIG common stock and its effect on the warrants.
- Lastly, we'll weigh the potential risks associated with the warrants so that you can make a sound investment decision based upon your risk tolerance.
- In this article, we focus on the strengths and weaknesses of American International Group.
- We specifically look at its profitability, income potential and growth prospects.
- AIG's valuation is also put under the microscope, and we compare it to a sub-industry peer, too.
Sat, Jan. 24, 4:48 PM
- The financial sector is off to a worse start to the year than even the energy names, with the XLF down 3.9% YTD vs. the XLE's 3.2% decline. The S&P 500 is roughly flat. The SPDR KBW Bank ETF (NYSEARCA:KBE) is off 7.5%, and the Regional Bank ETF (NYSEARCA:KRE) is lower by 6.9%.
- Q4 earnings results haven't been wonderful, but financial names had been savaged well before those reports started coming out. Instead there's a difficult regulatory regime that won't quit, and - for now - it's looking like "wait'll next year" for the rising interest rates that were supposed to drive profit margins higher. The 10-year/2-year spread - already pretty low at 150 basis points to start the year - has narrowed to 137 bps.
- A partial roll call of banks: Bank of America (NYSE:BAC) -12.1% YTD, Citigroup (NYSE:C) -10.1%, JPMorgan (NYSE:JPM) -9.4%, Morgan Stanley (NYSE:MS) -9.4%, Regions Financial (NYSE:RF) -14.7%, KeyCorp (NYSE:KEY) -4.5%, PNC Financial (NYSE:PNC) -5.4%, Bank of New York (NYSE:BK) -9.1%, Capital One (NYSE:COF) -6%, Discover (NYSE:DFS) -13.6%.
- Other spread-starved sector names: MetLife (NYSE:MET) -9.8%, AIG (NYSE:AIG) -8%, Prudential (NYSE:PRU) -10.8%, Schwab (NYSE:SCHW) -9.9%.
- Some of what's working in financials: Blackstone (NYSE:BX) +6.7%, E*Trade (NASDAQ:ETFC) +1.2%, WisdomTree (NASDAQ:WETF) +12.3%, Legg Mason +2.8%.
Wed, Jan. 21, 7:21 AM
- Ireland's Laya Healthcare has nearly 500K customers and employs 450, mostly in Cork.
- "Building on Laya Healthcare’s success serving customers in Ireland is an important step in expanding AIG’s Health and Consumer strategies," says global head of AIG's health business, Jay Sheehy.
- The deal is expected to close in H1. No terms were disclosed.
- Source: Press Release
Tue, Jan. 20, 8:57 AM
- "We are just very disciplined with the money of our shareholders and will do what's best for them: whether it is paying down debt, buying airplanes or buying back shares," says AerCap (NYSE:AER) CEO Aengus Kelly, responding to a question as to whether the company might buy back all or part of its stock owned by AIG.
- Earlier headlines making the rounds described Kelly's comments as suggesting a stronger consideration of a buyback.
- AerCap has maintained its priority is reducing its debt loan during the ILFC integration, a strategy Kelly says is ahead of schedule.
Tue, Jan. 20, 8:13 AM
- To review, AIG is the owner of nearly 100M shares of AerCap (NYSE:AER) following its sale of ILFC in May 2014. AerCap's stock price has declined from about the $45 area at the time of the sale to $38 at the close on Friday, and Reuters reports the company is mulling repurchasing shares from AIG.
- AIG +1.3% premarket
Mon, Jan. 12, 3:02 PM
- It's safe to say AIG (AIG -1.7%) has regained the confidence of the debt markets as it offers $2B of bonds today, including $800M in 40-year notes that could price just 190 basis points above Treasurys, reports Bloomberg.
- “The terms they are getting are pretty darn attractive,” says a fund manager. “They have taken steps that give investors comfort they aren’t content on being a zombie company and won’t make the same mistakes they made in the past.”
Thu, Jan. 8, 9:43 AM
- "We continue to view AIG (AIG) as the best positioned non-bank SIFI among the Big 3 (MET and PRU are the others) with regard to probability of returning the highest proportion of earnings both now and in the future as federal regulation unfolds," says Credit Suisse, downgrading AIG to Neutral from Outperform, and cutting the price target by $1 to $59.
- However, says the team, AIG is nearing its maximum sustainable payout ratio, while both MetLife and Prudential have room to go higher. By Credit Suisse's calculations, AIG's capital returns are near 100% of GAAP earnings vs. 35-45% for MET and PRU.
Nov. 25, 2014, 2:46 PM
- "Not surprisingly, billionaires reduced their energy allocations (NYSEARCA:XLE) during Q3," says Direxion, unveiling the quarterly rebalance for the iBillionaire Index (which serves as the benchmark for the IBLN ETF). Attention was instead shifted to healthcare (NYSEARCA:XLV) and materials (NYSEARCA:XLB), with companies like Humana (NYSE:HUM) and Monsanto (NYSE:MON).
- Also added to the index: TMO, GM, FB, CBS, GOOG, MAS, APD, DAL, NOV, WHR, THC, ABBV.
- Dropped from the index: AIG, MCK, CTSH, MSI, RIG, CI, APC, GPS, MSFT, CMCSA, NFLX, MHFI, WMB, ICE.
- Outlying sectors: Consumer Discretionary (NYSEARCA:XLY) makes up 23.33% of the iBillionaire Index vs. 11.68% for the S&P 500, and Industrials (NYSEARCA:XLI) and financials (NYSEARCA:XLF) make up just 6.67% each of the index vs. 10.44 and 16.30 of the S&P 500, respectively. Consumer Staples (NYSEARCA:XLP) have zero representation in the index vs. 9.7% in the S&P 500.
- Previously: Direxion launched an ETF with iBillionaire today
Nov. 19, 2014, 10:05 AM
- Valuation and the stock's lagging performance make Prudential (PRU +0.1%) a relative bargain, says the team, with the company's analyst day on December 11 a possible catalyst to move shares higher.
- Prudential is down 8.8% YTD, lagging names like Hartford (NYSE:HIG), MetLife (NYSE:MET), AIG, and Lincoln National (NYSE:LNC) by anywhere from 1K to 2K basis points.
Nov. 14, 2014, 7:47 AM
- “If I was the government, I would absolutely look to AIG and to anyone else to pick up some of the tab,” says David Zaring, a Wharton professor. Though it isn't a party to Hank Greenberg's $25B suit against the government, AIG - as a condition to its $85B bailout - did agree to pay any damages resulting from litigation tied to the rescue.
- AIG had about $9B in net profit last year.
- Others disagree. “I’ve never run across an indemnity agreement like that," says Vermont Law School's John Echeverria, who doesn't think the clause is enforceable. “I’m not aware of any case where the government has gone after a third party and recovered for any damages," says Nancie Marzulla, a Washington attorney who specializes in federal claims litigation.
Nov. 3, 2014, 4:52 PM| Comment!
Nov. 3, 2014, 4:20 PM
- Q3 after-tax operating income of $1.7B up 23% from a year ago. Operating EPS of $1.21 up from $0.96.
- Book value per share excluding AOCI and DTA of $58.11 up 15% Y/Y. 24.8M shares repurchased during quarter for about $1.5B; $3.4B of stock bought back YTD. Another $1.5B of share repurchases is authorized.
- AIG Property & Casualty: Pretax operating income of $1.096B up 2% Y/Y. Net premiums written of $8.953B up 3%. Net investment income of $1.265B up 4%. Adjusted combined ratio of 95.6 improves by 240 basis points.
- Commercial Insurance underwriting: Net premiums written of $5.496B up 5%. Adjusted combined ratio of 91.6% improves 300 basis points.
- Consumer Insurance underwriting: Net premiums written of $3.454B flat Y/Y. Adjusted combined ratio of 98.5% improves 110 basis points.
- AIG Life & Retirement: Pretax operating income of $1.348B up 18% Y/Y. Premiums and deposits of $9.662B up 15%. Net investment income of $2.614B up 6%. AUM of $334B up 10%.
- Mortgage Guaranty: Pretax operating income of $135M up 214% Y/Y thanks to a big drop in claims alongside a boost in net premiums earned ($227M, up 11%).
- Conference call tomorrow at 8 ET
- Previously: American International Group beats by $0.12, beats on revenue
- AIG +1.3%
Nov. 3, 2014, 4:07 PM| Comment!
Nov. 3, 2014, 10:35 AM
- Earnings to be reported after the bell may have more implications for the future of AIG's stock price, but former company chief Hank Greenberg's $25B lawsuit against the government charging it with setting illegally harsh terms on the 2008 bailout continues. Widely scorned and brushed off just weeks ago, Greenberg and lawyer David Boies could be set for a victory.
- Boies, reports Bloomberg's Andrew Zajac and Christie Smythe, has won a series of evidentiary rulings since the trial (presided over by Judge Thomas Wheeler without a jury) began on September 29. He's also extracted useful admissions from witnesses, though the gang of Hank Paulson, Ben Bernanke, and Tim Geithner have stuck with their claims that global financial destruction was assured if they didn't get their way.
- Among the evidence introduced by Boies is an email from a FRBNY vice president describing the AIG interest rate as "crazily high." It surely paled in comparison to what shops like Goldman Sachs and Morgan Stanley paid.
Nov. 2, 2014, 5:35 PM
- ACXM, AEIS, AGU, AIG, AMTG, ANV, APL, BDE, BKH, CHGG, CKP, CRK, CUTR, CVD, CXW, CYH, DXPE, EGAN, ELNK, ENH, EOX, EPAM, EQC, FN, FTR, GALE, GRT, GTY, HLF, IART, ININ, KAMN, KBR, LCI, MCEP, MDU, MR, MRO, NBIX, NLS, NOR, NTRI, OGS, OTTR, PKT, PL, PLOW, PQ, QLYS, RBC, REG, RKT, RKUS, RLD, RTEC, SALE, SBRA, SGY, SKH, SNHY, SRC, SSW, SUP, TDW, THC, TXRH, VNO, VNR, WTR, Y
Oct. 23, 2014, 11:03 AM
- Still waging the last war, the regulatory generals of Basel have completed drafting "the first-ever global insurance capital standard." Beginning in 2015, nine companies which have been decreed as systemically important by the FInancial Stability Board (this is different than the U.S.'s SIFI-designation), will report a "basic capital requirements" ratio on a confidential basis.
- The next stage set for the end of 2015 is the definition of "higher loss absorbency" requirements.
- Among the list of nine: AIG, Allianz (OTCQX:AZSEY), MetLife (NYSE:MET), Axa (OTCPK:AXAHF, OTCQX:AXAHY), and Prudential (NYSE:PRU).
Oct. 20, 2014, 2:53 PM
- Analysts Joshua Shanker and Phil Stefano still don't love the company, noting a bloated expense structure, high reliance on positive capital markets trends, and a high-profile trial alleging AIG didn't act in shareholder interest when it accepted a government bailout, but the stock has declined enough of late to make it a bargain even with those negatives.
- "The financial engineering at the company currently makes up for the shortcomings in its operational performance," they say. "We believe that has been true for the last three years, and will continue to be true for the foreseeable future." Should the operational issues get resolved, look out above.
- The duo also remind that AIG isn't the only insurance stock taking a beating of late, and Ameriprise FInancial (AMP +0.6%), MetLife (MET +0.5%), and Prudential (PRU -0.4%) have taken even bigger hits. Exposure to 10-year interest rates is the reason, they expect, pointing to P&C insurers which haven't fallen nearly as far.
- Previously: Deutsche buys the dip in AIG
AIG vs. ETF Alternatives
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