Compelling Risk/Reward Seen In American International Group Shares; Morgan Stanley Upgrades

Morgan Stanley upgraded shares of American International Group Inc AIG, citing the appointment of a credible CEO and a powerful valuation. These factors, according to the firm, is the combination for multi-year ROE improvement and shareholder value creation.

The New CEO And His Goals

Analysts Kai Pan, Nigel Dally, Chai Gohil and Michael Phillips noted that the company named P&C industry veteran Brian Duperreault as its new CEO. The new CEO has set a new strategic vision, including a combined P&C and Life franchise, profitable growth, and focus on technology, the analysts noted.

The analysts believe the new CEO should work toward:

• Further strengthening reserves.
• Invest for growth.
• Attract industry talent.

The analysts see this as thesis changing and set a multi-year path for franchise building and shareholder value creation. Specifically, the analysts estimate a 5-point improvement in combined ration and a $5 billion premium growth, adding about 13 percent to earnings per share and 100 basis points to return on equity in 2019.

Track Record Of New CEO Boosting Confidence

Morgan Stanley noted that Duperreault spent two decades at AIG, leading two large public P&C companies, producing industry-leading combined ratio at ACE and turning around MMC after regulatory investigations.

"Duperreault's incentive compensation includes 1m stock options which will only be vested if AIG shares trade at $10-30 above ~$61 levels," the firm added.

"We think this aligns well with shareholders' interest."

Valuation Attractive

The firm sees AIG's valuation as attractive, as it thinks the valuation does not reflect its ROE potential.

As such, Morgan Stanley upgraded the shares of AIG to Overweight and lifted its price target for the shares to $72 from $70.

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