AIG Shares Reaches 52-Week High - Analyst Blog

Riding on a steady growth momentum, the shares of American International Group Inc. AIG hit a new 52-week high at $54.03 on May 21. This global multi-line insurer's shares rose about 5.9% since the company reported first-quarter 2014 results at the beginning of May with a positive earnings surprise of 12.04%.

The improved momentum of this Zacks Rank #3 (Hold) stock is fueled by completed sale of aircraft leasing unit (ILFC) and aggressive focus on streamlining operations. Yesterday's closing price represents a strong one-year return of about 18.3%, against 13.2% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 6,204K.

Earnings Review

On May 5, AIG reported first-quarter 2014 operating earnings per share of $1.21, which surpassed the Zacks Consensus Estimate of $1.08. However, earnings were lower than the year-ago quarter figure of $1.34 by 9.7%.

Results reflected lower premiums and adverse reserves in property-casualty (P&C) unit that deteriorated the top line, whereas higher claims and catastrophe losses dragged the bottom line, combined ratio and return on equity (ROE). However, improved book value per share, assets under management (AUM) and financial leverage remained impressive.

Rationale

Despite intense competition, currency risks and volatility in interest rates, which restrict investment returns, AIG has a strong capital and cash flow position. The successful streamlining of operations to control costs, together with business de-risking, solid grip on core operations and a strong ratings score well for long-term growth.

Additionally, the capital flexibility attained with divestment of ILFC earlier this month, is expected to boost the company's results, going forward. AIG's improved capital position, despite being designated as a non-bank systemically important financial institution SIFI, also paves the way for accelerated capital deployment.

Some better-ranked insurersthat warrant a look include OneBeacon Insurance Group Ltd. OB, HCI Group Inc. HCI and AmTrust Financial Services Inc. AFSI. All these stocks sport a Zacks Rank #1 (Strong Buy).

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