AIG Has 'Messy' Quarter, But Here's What Really Matters

• Shares of American International Group Inc AIG have appreciated 11.42 percent over the past month, reaching a high of $64.14 on November 2.
• Citi’s Todd Bault has maintained a Buy rating on the company, with a price target of $71.
• Although 3Q was a “messy quarter” for the company, Bault believes that AIG would increase its focus on restructuring and other measures to unlock value, which would drive the stock.

Analyst Todd Bault mentioned that the company reported its 3Q operating EPS significantly below the consensus and the estimate, driven to a large extent by “lower than expected alt investment returns.”

“While many of these items are non-trendable, it was a weak quarter overall,” Bault stated, while noting that capital return was “a bright spot.”

There was a sharp narrowing of spreads during the quarter, driven by losses on hedge funds, while benefits and expenses also increased in group retirement, retirement income and individual life.

According to the Citi report, “A number of factors make separating AIG’s life and P&C businesses difficult, including potential erosion of the DTA and loss of diversification capital benefits.”

However, Bault believes that there could be some steps that management could take to unlock value, such as a spin-off or sale of the UGC business or of other smaller units. Break-up discussions suggest that the company has “attractive and under-valued assets and provides positive optionality.”