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AIG Rises 16.4% in Three Months: What's Driving the Stock?
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American International Group, Inc. (AIG - Free Report) shares have jumped 16.4% in the past three months compared with the 5.4% rise of the industry it belongs to, thanks to the rapidly improving underwriting performance. AIG’s efficient management and favorable business scenario have created prudent investment opportunities.
Based in New York, AIG is a leading global insurance organization. It has a market cap of $40 billion now.
Image Source: Zacks Investment Research
Can it Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for the full-year 2023 stand.
The Zacks Consensus Estimate for AIG’s 2023 earnings is pegged at $6.46 per share, indicating a 42% jump from $4.55 a year ago. It has witnessed three upward estimate revisions in the past 60 days against one movement in the opposite direction. The company beat earnings estimates in three of the last four quarters and missed once, with an average surprise of 9.2%.
Furthermore, the consensus estimate for 2023 revenues stands at $49.5 billion, signaling a 9% year-over-year rise.
Now let’s delve into what’s driving this Zacks Rank #3 (Hold) stock.
The company’s improving profitability is making the stock lucrative for investors. The management is working on improving ROCE with the help of cost-curbing efforts, enhancing underwriting profitability and streamlining operations. AIG closed the IPO of Corebridge Financial, Inc. (CRBG - Free Report) , the holding company of its Life and Retirement unit, in September 2022. This month, it closed the secondary offering, where it sold 74.75 million CRBG shares.
The company has managed to improve its combined ratio over the past few years. In its General Insurance business, AIG reduced the combined ratio from 104.3% in 2020 to 95.8% in 2021 and 91.9% in 2022. Our estimate for 2023 and 2024 for the metric is pegged at 90.3% and 88.8%, respectively, indicating more premiums to remain with the company after claims.
Strong pricing will likely help AIG to increase its revenues. We expect premium income for 2023 to increase by almost 10% year over year. Furthermore, the high interest rate environment will keep boosting its investment returns. Our estimate for net investment income for this year indicates 9.2% year-over-year growth.
Risks
Despite the upside potential, there are a few factors that might hold back the stock’s growth.
Its debt-laden balance sheet is concerning. American International exited the first quarter with a cash balance of $1,923 million, which decreased from $2,043 million at 2022-end. Its short and long-term debt of $22.1 billion rose from $21.3 billion at the prior-year end. Its net debt-to-capital of 48% is significantly higher than the industry average.
Also, AIG is likely to avoid some home insurance policies in disaster-prone zones, which can affect its sales. Nevertheless, we believe that a systematic and strategic plan of action will drive the company’s long-term growth.
Based in Atlanta, GA, Assurant is a global risk management solutions provider. The Zacks Consensus Estimate for AIZ’s current year earnings indicates a 22.1% year-over-year increase.
Headquartered in Chicago, Old Republic International has insurance underwriting business and related services. The Zacks Consensus Estimate for ORI’s 2023 earnings has improved 9.1% over the past 60 days.
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AIG Rises 16.4% in Three Months: What's Driving the Stock?
American International Group, Inc. (AIG - Free Report) shares have jumped 16.4% in the past three months compared with the 5.4% rise of the industry it belongs to, thanks to the rapidly improving underwriting performance. AIG’s efficient management and favorable business scenario have created prudent investment opportunities.
Based in New York, AIG is a leading global insurance organization. It has a market cap of $40 billion now.
Image Source: Zacks Investment Research
Can it Retain Momentum?
The answer is yes and before we get into the details, let us show you how its estimates for the full-year 2023 stand.
The Zacks Consensus Estimate for AIG’s 2023 earnings is pegged at $6.46 per share, indicating a 42% jump from $4.55 a year ago. It has witnessed three upward estimate revisions in the past 60 days against one movement in the opposite direction. The company beat earnings estimates in three of the last four quarters and missed once, with an average surprise of 9.2%.
Furthermore, the consensus estimate for 2023 revenues stands at $49.5 billion, signaling a 9% year-over-year rise.
Now let’s delve into what’s driving this Zacks Rank #3 (Hold) stock.
The company’s improving profitability is making the stock lucrative for investors. The management is working on improving ROCE with the help of cost-curbing efforts, enhancing underwriting profitability and streamlining operations. AIG closed the IPO of Corebridge Financial, Inc. (CRBG - Free Report) , the holding company of its Life and Retirement unit, in September 2022. This month, it closed the secondary offering, where it sold 74.75 million CRBG shares.
The company has managed to improve its combined ratio over the past few years. In its General Insurance business, AIG reduced the combined ratio from 104.3% in 2020 to 95.8% in 2021 and 91.9% in 2022. Our estimate for 2023 and 2024 for the metric is pegged at 90.3% and 88.8%, respectively, indicating more premiums to remain with the company after claims.
Strong pricing will likely help AIG to increase its revenues. We expect premium income for 2023 to increase by almost 10% year over year. Furthermore, the high interest rate environment will keep boosting its investment returns. Our estimate for net investment income for this year indicates 9.2% year-over-year growth.
Risks
Despite the upside potential, there are a few factors that might hold back the stock’s growth.
Its debt-laden balance sheet is concerning. American International exited the first quarter with a cash balance of $1,923 million, which decreased from $2,043 million at 2022-end. Its short and long-term debt of $22.1 billion rose from $21.3 billion at the prior-year end. Its net debt-to-capital of 48% is significantly higher than the industry average.
Also, AIG is likely to avoid some home insurance policies in disaster-prone zones, which can affect its sales. Nevertheless, we believe that a systematic and strategic plan of action will drive the company’s long-term growth.
Key Picks
Some better-ranked stocks in the broader finance space are Assurant, Inc. (AIZ - Free Report) and Old Republic International Corporation (ORI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Atlanta, GA, Assurant is a global risk management solutions provider. The Zacks Consensus Estimate for AIZ’s current year earnings indicates a 22.1% year-over-year increase.
Headquartered in Chicago, Old Republic International has insurance underwriting business and related services. The Zacks Consensus Estimate for ORI’s 2023 earnings has improved 9.1% over the past 60 days.