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Why You Should Hold American International (AIG) Stock Now

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American International Group, Inc. (AIG - Free Report) is well-poised to grow on the back of acquisitions and prudent capital allocation. Improving travel and warranty operations are likely to drive AIG’s personal lines insurance business in the coming days.

American International, with a market cap of $47 billion, is a leading global insurance organization. Building on its long history, AIG provides a wide range of property casualty and different types of liability insurance. AIG also includes multiple types of auto insurance and health products.

Courtesy of solid prospects, this Zacks Rank #3 (Hold) company is worth retaining at the moment.

Key Drivers

AIG’s cost-controlling efforts are expected to support its bottom line. Its transformative program, named AIG 200, a global, multi-year initiative to achieve transformational changes, achieved its run-rate savings target six months ahead of schedule.

Thanks to alterations in the business mix and ongoing expense discipline, its expense ratio is expected to continue improving. The metric improved 90 basis points in the first nine months of 2022. Our estimate suggests general operating and other expenses to decline 2.6% year over year in 2022.

The Zacks Consensus Estimate for American International’s 2022 earnings is pegged at $4.33 per share, which has been unchanged over the past week. Our estimate for the metric is pegged at $4.13 per share. AIG beat on earnings in three of the last four quarters and missed once, the average beat being 13%. The consensus estimate for 2022 revenues is pegged at $45 billion, while our estimate is pegged at $44.9 billion.

The Fed opted for multiple aggressive interest rate hikes last year to counter the fastest inflation pace witnessed in more than 40 years. Even though the intensity is expected to decline this year, the growing interest rate environment is likely to benefit investment income from AIG’s General Insurance North America operations.

The improving economy and declining COVID-related restrictions have led to increased consumer spending. This is likely to drive AIG’s net written premiums and revenue growth in the days ahead. Its personal lines insurance business is expected to continue witnessing an improvement in travel and warranty operations.

The company’s prudent capital allocation to buyouts and shareholder value-boosting measures is a major positive. Strategic acquisitions help the company scale its business and improve its product portfolio. Its capital deployment efforts enhance shareholder value through share buybacks and dividend payouts.

In the first nine months of 2022, AIG rewarded shareholders with $4,370 million in share buybacks and dividends worth $746 million. At the third-quarter end, it had $4.6 billion remaining under its share repurchase authorization.

Risks

There are a few factors that might mar American International’s prospects.

In the trailing 12 months, AIG’s free cash flow declined 27.8% to $4.5 billion. Also, American International’s return on equity of 7.3% is lower than the industry average of 8.4%. This reflects AIG’s relative inefficiency in utilizing its shareholders’ funds to generate profits. Nevertheless, we believe that a systematic and strategic plan of action will drive AIG’s long-term growth.

Key Picks

Some better-ranked stocks in the broader finance space are CI Financial Corp. , MGIC Investment Corporation (MTG - Free Report) and Aegon N.V. (AEG - Free Report) . While CI Financial sports a Zacks Rank #1 (Strong Buy) at the moment, MGIC Investment and Aegon have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Toronto, CI Financial is a leading asset management holding company. The Zacks Consensus Estimate for CIXX’s 2023 earnings indicates an 11.9% year-over-year increase.

Headquartered in Milwaukee, WI, MGIC Investment provides private mortgage insurance and other products in the domestic markets and internationally. The Zacks Consensus Estimate for MTG’s 2022 earnings indicates a 49.7% increase from the prior-year reported number.

Based in The Hague, the Netherlands, Aegon is an insurance, pensions and asset management services provider. The Zacks Consensus Estimate for AEG’s 2022 bottom line has improved 128.6% in the past 60 days.


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