On Tuesday, BofA Securities updated its outlook on shares of American International Group (NYSE:AIG), increasing the price target to $84.00 from the previous $82.00. The firm has chosen to maintain a Neutral rating on the insurance giant's stock.
The adjustment comes as BofA Securities shifts its valuation approach for AIG, aligning it more closely with industry standards for large-cap property and casualty (P&C) insurers.
The analyst at BofA Securities explained the change in valuation methodology for AIG, moving away from a sum-of-the-parts evaluation. Previously, the analyst had assessed AIG's General Insurance and Life businesses separately, including the value of the deferred tax asset (DTA).
The new approach applies the forward price-to-earnings (P/E) multiple of 10.6x, which is characteristic of AIG's large-cap P&C peers, to AIG's anticipated 2026 earnings. This calculation underpins the revised 12-month price target of $84.
BofA Securities anticipates that AIG's deferred tax asset will be fully utilized by the end of 2026, which is reflected in the updated price target. While acknowledging that AIG's trading history, diminishing reserve base, and slower premium growth could justify a lower valuation multiple compared to its peers, the analyst noted that in the near term, AIG's aggressive share repurchase strategy provides a level of price support that is not commonly seen among its peer group.
The firm's stance on AIG remains neutral despite the revised price target, suggesting that while there may be factors that could potentially affect the company's stock performance, the current price adequately reflects AIG's valuation and prospects. The analyst's commentary indicates a cautious but attentive outlook on the company's financial health and market activities.
Investors and market watchers will likely monitor AIG's performance, especially in relation to the share repurchases and its impact on stock value, as well as the company's progress toward the utilization of its deferred tax asset.
In other recent news, American International Group (AIG) has made significant strides in reshaping its financial landscape. The global insurance company has completed the deconsolidation of Corebridge Financial, Inc. for accounting purposes, following the resignation of Chris Schaper, AIG's Executive Vice President and Global Chief Underwriting Officer, from Corebridge's board. AIG still holds a substantial stake in Corebridge, retaining approximately 48.35% of the company's common stock.
In line with this development, AIG has sold an additional 30 million shares of Corebridge Financial, further reducing its pro forma ownership to around 48.4%. The company's second-quarter earnings per share (EPS) estimates for 2024 are set at $1.88, with an aggressive cost-cutting measure targeting a 13% expense reduction.
Analysts from firms such as Keefe, Bruyette & Woods, Piper Sandler, and Morgan Stanley (NYSE:MS) have maintained their ratings on AIG's stock, with price targets ranging from $82.00 to $89.00. BMO (TSX:BMO) Capital Markets has given an Outperform rating with a price target raised to $89.00.
The recent developments underscore AIG's strategic moves to monetize its life insurance stake in Corebridge and implement cost efficiency programs. These changes are expected to streamline operations and potentially lead to significant gains in efficiency. As AIG and Corebridge continue to operate in the global insurance market, investors and market watchers will closely monitor the progress of these strategic initiatives.
InvestingPro Insights
As BofA Securities adjusts its valuation and maintains a neutral stance on American International Group (NYSE:AIG), real-time data and insights from InvestingPro further enrich the investment perspective. With a market capitalization of $50.45 billion, AIG's P/E ratio stands at a competitive 10.75, reflecting a valuation that aligns with the industry's large-cap P&C insurers. Additionally, the company's price/book ratio of 1.16 suggests that AIG's stock is reasonably valued relative to its book value.
InvestingPro Tips highlight AIG's proactive management strategy, including an aggressive share buyback program and a high shareholder yield, which supports BofA Securities' observation of AIG's share price support. Moreover, analysts predict the company will remain profitable this year, backed by a solid performance over the last twelve months. These factors are particularly noteworthy as they align with the analyst's notion that AIG's aggressive share repurchase strategy provides a cushion for the stock price.
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