Citi Sees AIG As 'Major Value Opportunity'

American International Group Inc AIG shares were down sharply in January, falling nearly 13 percent. Shares are now trading at levels last seen a year ago. Citi on Monday suggested the shares are a Buy, with a 12-month price target of $68, a 40 percent return including dividends.

Citi points to four reasons that the stock has declined in January: (1) fears over weak Q4 results; (2) uncertainty surrounding the Starr lawsuit; (3) speculation that the pace of capital return could slow; and (4) a weak macro environment.

Regarding Q4 earnings, the Citi analysts believe low expectations could allow AIG to have a “kitchen sink” quarter – charging off impacts from low interest rates and additional potential losses. In addition, the analysts say that AIG is in the final innings of having to add to capital deficiencies in property and casualty reserves.

Citi says that if AIG does take large reserve charges, the initial reaction could be negative. However, those charges are already baked into the stock – meaning that with uncertainty gone, the charges will be a long-term positive.

Citi expects AIG to report EPS of $1 in Q4, with FY2014 EPS of $4.67. In 2015, EPS will be at $4.80, according to the analysts.