Deutsche Bank Upgrades American International Group Inc.

Deutsche Bank upgraded American International Group Inc. AIG from Hold to Buy and raised its price target from $59 to $60 in a report issued Monday.

Analysts Joshua Shanker and Phil Stefano felt that while “too much of earnings stems from mark-to-market gains on derivative and bond portfolios” and that  “ROE seems likely to be below its equity cost of capital...all these things are more than priced into a company that is...trading at 65 percent of book value.”

According to the report, the “company does seem on pace to return $25 billon of cash to shareholders over the 2011-2015 stretch. Even as share repurchases have slowed, while AIG awaits clarity on SIFI requirements, the company has been able to grow BVPS by 15-16 percent while earning a core ROE around 6-7 percent.”

Regarding valuation, “the peer group generates 12-13 percent ROEs and trades at 1.2x, and we value $56 of year-ahead BVPS generating a near 8 percent ROE at 0.9x. We believe there is $13 per share of value in the non-core assets of the firm. Additionally, we apply a 5 percent conglomerate discount,” according to Shanker.

American International Group Inc. traded at $51.28 in the premarket, up 1.02 percent.