AIG Gears Up for Q1 Earnings: A Beat in Store for the Stock?

American International Group, Inc. AIG is scheduled to report first-quarter 2020 results on May 4.

Q1 Earnings & Revenue Expectations    

The Zacks Consensus Estimate for AIG’s first-quarter earnings of 83 cents per share implies a decline of 47.5% increase from the prior-year reported number. Likewise, the consensus estimate for sales of $11.58 billion suggests a 10.3% decrease from the year-ago reported figure.

Factors at Play

In the first quarter, AIG’s General Insurance segment is likely to have witnessed a fall in premium due to lower contribution from North America  business. Net income is likely to have been aided by lower catastrophe, continued underwriting actions, reinsurance and expense discipline.

The Life and Retirement segment is likely to have benefited from continued discipline and execution of its growth strategy, partly offset by weak private equity returns and a less favorable market performance. This segment is expected to have seen higher sales in individual retirement, partly offset by lower sales of individual annuity.

The company is likely to have witnessed a decline in sale of Fixed Annuities products in the to-be-reported quarter due to low interest rates.  
The company’s debt levels are expected to have declined in the quarter under review, given that it is prioritizing to reduce its leverage and reinvest in business.

One of the company’s top financial goals is to generate sustainable gains from operating efficiency via reduction in net expenses. To this end, measures taken by the company comprised a cutback in headcount, freezing of pension plans and divestiture of underperforming units.  These initiatives led to a decline in expenses in 2016, 2017 and in 2018. Notably, general operating expenses or GOE declined 8% year over year in 2019.

The company continues to execute strategies focused on organizational simplification, operational excellence and portfolio rationalization. Such efforts are expected to have led to a strict cost control in the first quarter, which might have provided an impetus to the company’s operating margins. We thus expect the first- quarter results to reflect a decline in costs.

However, the company might have suffered a loss from its equity investments given that nearly 4% of its investments is in energy sector.

During the quarter, American International Group entered in an accelerated share repurchase agreement with Citibank N.A. to repurchase $500 million of its common stock as part of the company’s existing $2-billion share repurchase authorization.

As catastrophe activity was lower in the first quarter, it is expected to have aided margin growth.

Earnings Surprise History and Q4 Performance

AIG boasts an impressive earnings surprise record, having surpassed the Zacks Consensus Estimate in three of the last four quarters, missing the same in one. The average negative surprise is 6.86%. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

American International Group, Inc. Price and EPS Surprise

American International Group, Inc. price-eps-surprise | American International Group, Inc. Quote

In fourth-quarter 2019, the company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by 0.98%.

What Our Quantitative Model States

Our proven model predicts an earning beat for AIG this season. The combination of a positive Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: AIG has an Earnings ESP of +1.60%, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, AIG carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Some other stocks worth considering with the perfect combination of elements to surpass estimates this reporting cycle are as follows:

UNM Group Inc. UNM has a Zacks Rank of 3 and an Earnings ESP of +0.25%

You can see the complete list of today’s Zacks #1 Rank stocks here.

Assurant Inc. AIZ is a Zacks #2 Ranked stock and has an Earnings ESP of +4.28%.

Magellan Health, Inc. MGLN has an Earnings ESP of +39.26% and is a #3 Ranked player.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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