American International Group Inc AIG reported its 1Q16 results, with the operating EPS well below the estimate and the consensus.
Goldman Sachs’ Michael Nannizzi maintains a Buy rating on the company, with a price target of $66.
1Q Results
“The headline miss was driven largely by investment items including hedge fund losses and parent company mark-to-market losses, offset by a favorable tax rate,” Nannizzi explained.
AIG also undertook lower buy backs at $3.5 billion, below the estimate of $5 billion, although the company has repurchased shares worth an additional $1 billion so far in 2Q.
According to the Goldman Sachs report, “Companywide, underwriting results overall beat despite higher CATs as favorable underlying results in North America Commercial and the whole Consumer segment more than offset a wide miss in Int’l Commercial.”
Underlying profits for consumer P&C also meaningfully beat the estimates, gaining 620 bps year-on-year, driven by lower losses and expenses.
Stock Outlook
Nannizzi expects the shares to underperform following the headline miss.
“However, shares could rebound if AIG can indicate that (1) positive results within the North America Commercial book are a good starting point for 2016, (2) expense gains in the Consumer book are sustainable, and (3) the International Commercial book’s poor 1Q result is not a run-rate,” the analyst added.
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