AIG Notches Upgrade Ahead Of Q1 Report On Fundamental Improvements

Shares of insurer American International Group Inc AIG have underperformed the S&P 500 Index year-to-date, prompting an analyst upgrade. 

The Analyst

Buckingham Research Group analyst Amit Kumar upgraded AIG from Underperform to Neutral and increased the price target from $52 to $55.

The Thesis

AIG stock is now priced in line with Buckingham's anticipated valuation, with the excitement seen after the appointment of new CEO Brian Duperreault now tapering off, Kumar said in a Friday note.

"From this point onward we anticipate the stock to move [in] lockstep with true fundamental improvements in the AIG story," the analyst said.

Commercial pricing continues to improve after earnings reports from Travelers Companies Inc TRV and W. R. Berkley Corp WRB. The improvement has been at a slower pace, Kumar said. 

While noting that Travelers' and W.R. Berkley's results revealed steady underlying trends, the analyst said AIG could potentially hold the line on underlying commercial loss ratios, eliciting a positive reaction from investors.

AIG's business mix is potentially levered to rising rates, with life insurance accounting for 50 percent of earnings, Kumar said. 

Buckingham's 2018 estimates are 5-6 percent below the consensus, even as the firm projects a likely upward revision to Street estimates.

"A 1-percent improvement in [the] general insurance commercial lines loss ratio would add 13 cents or 2 percent [to the] 2018 EPS estimate." 

Macro trends could stabilize for AIG, with the worst-case scenario suggesting a sideways move in the stock, Kumar said. If the company is able to report a clean quarter May 2, investor concerns could be allayed, according to Buckingham. 

The Price Action

AIG shares were up 1.2 percent at the time of publication Friday at $56.22. 

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Photo by Marc Bryan-Brown via Wikimedia.