Up 9% In The Last One Month, Where Is American International Group Stock Headed?

American International Group’s stock (NYSE: AIG) has gained around 2% YTD, while the S&P500 is up 19% over the same period. Further, at its current price of $65 per share, it is trading 4% below its fair value of $68 – Trefis’ estimate for American International Group’s valuation. 

Amid the current financial backdrop, AIG stock has seen extremely strong gains of 65% from levels of $40 in early January 2021 to around $65 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. AIG is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 50% in 2021, 11% in 2022, and 2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that AIG underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AIG face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

AIG posted mixed results in the third quarter of 2023, with earnings beating the mark but revenues falling short. It reported total revenues of $12.78 billion – down 9% y-o-y, mainly driven by a 7% decrease in the premiums and a drop in total net realized gains from $2.6 billion to $1.1 billion. The premiums figure mainly suffered in the general insurance and the institutional markets segments. On the flip side, the net investment income witnessed a significant jump of 33% in the quarter. It was due to higher income from available sale fixed maturity securities and an improvement in the interest rate environment. Overall, the adjusted net income decreased by 26% y-o-y to $2 billion.

The top line declined 13% y-o-y to $36.98 billion in the first nine months of FY2023. It was primarily because of a change in total net realized gains from $8.78 billion to -$1.13 billion, partially offset by positive growth in total premiums and net investment income. In addition to the lower revenues, the expense figure increased 9% y-o-y. It led to a 63% drop in the adjusted net income to $3.5 billion.

Moving forward, we estimate the American International Group revenues to remain around $50.66 billion in FY2023. Additionally, AIG’s adjusted net income margin is likely to see some drop in the year, leading to an annual EPS of $6.59. This coupled with a P/E multiple of just above 10x will lead to a valuation of $68.

[1] Month-to-date and year-to-date as of 11/29/2023
[2] Cumulative total returns since the end of 2016

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