American International Group Inc AIG reported fourth-quarter results Thursday that which were encouraging enough for Bank of America Merrill Lynch to turn bullish on the stock.
The Analyst
BofA's Jay Cohen upgraded American International Group's stock from Neutral to Buy with a price target boosted from $65 to $70.
The Thesis
AIG's Q4 was "encouraging," but the most obvious highlight was good results in the company's U.S. commercial insurance business — a source of concern and earnings drag over the past three years, Cohen said in the upgrade note. In fact, the segment's loss reserves "developed favorably," which Cohen said he views as an "unexpected and welcome change."
Other favorable aspects in the earnings report include an improvement in the underlying loss ratio and the U.S. personal insurance business, showing it is still a "reliable performer," the analyst said. In addition, AIG's underlying margin was the best recorded in some time, and even if this trend doesn't continue, it should at the very least modestly improve the outlook, Cohen said.
AIG shares have come under some selling pressure since late January and are now trading near $58 per share, which is a key support level over the past 18 months, the analyst said.
AIG's earnings show management addressed multiple issues which plagued the company over the past five year, and the company should now be able to offer "relatively cleaner earnings" in 2018 and 2019, according to BofA.
Price Action
Shares of American International Group were up 0.80 percent Friday midday at $58.89.
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