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Why You Must Add American International (AIG) to Your Portfolio

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American International Group, Inc. AIG is well poised to grow on the back of strategic acquisitions and its multi-year transformative program. Improving travel and warranty business is likely to drive AIG’s Personal lines insurance business in the coming days.

American International — with a market cap of $41.8 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 insurances. AIG also includes multiple types of auto insurances and health products.

Courtesy of solid prospects, this presently Zacks Rank #2 (Buy) stock is worth snapping up at the moment.

Rising Estimates

The Zacks Consensus Estimate for American International’s 2022 earnings is pegged at $5.18 per share, indicating a 1.2% rise from the year-ago reported figure. AIG has witnessed two upward estimate revisions in the past 60 days against none in the opposite direction. AIG beat on earnings in each of the last four quarters, the average being 18.9%.

American International Group, Inc. Price and EPS Surprise

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

The consensus estimate for 2022 revenues stands at $48.3 billion, suggesting a 0.6% rise from the year-ago reported figure.

VGM Score

American International currently has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Drivers

AIG’s focus on improving costs to boost its profit levels is noteworthy. American Internationalundertook a transformative program named AIG 200, which is a global, multi-year initiative to achieve transformational changes. The program has provided an $810-million cost-saving so far. AIG expects to achieve run-rate savings worth $1 billion by the end of 2022.

The expense ratio also improved 170 basis points (bps) in 2021 and 120 bps in first-quarter 2022, courtesy of alteration in business mix, ongoing expense discipline and an improved premium base. These initiatives will lead to operational efficiency and provide an extra boost to its operating margins. Also, to support its AIG 200 strategy, American International selected Amazon.com, Inc.’s AMZN cloud computing platform Amazon Web Services as its preferred public cloud provider.

Opting for Amazon Web Services will enable large-scale digital transformation and move most of AIG’s workloads off the legacy platforms, thereby enhancing security and market opportunities. This move will likely stimulate the leading global insurance firm’s long-term growth process and business expansion.

American International is expected to witness higher investment income from its General Insurance North America operations, primarily owing to growing interest rates, which will likely reduce the inflation rates. The Fed in the United States is expected to opt for multiple aggressive interest rate hikes this year to counter the fastest inflation pace witnessed in more than 40 years.

American International’s Commercial lines business is witnessing growth in both North America and internationally. Continuous rate increases, solid retention rates and a strong new business production will keep boosting the business in the future. Also, its Personal lines insurance business is expected to witness growth in the travel and warranty business. Improving consumer spending is likely to drive AIG’s net written premiums and revenue growth in the days ahead.

AIG’s prudent capital allocation to buyouts and shareholder value addition is a major positive. Strategic acquisitions at an opportune time like Validus Holdings, Ltd. and Glatfelter Insurance Group are strengthening American International’s global General Insurance business. Further, its capital-deployment efforts are likely to enhance shareholder value through share buybacks and dividend payouts. AIG is likely to buy back $3.9 billion of common shares by 2022 end. The board of directors approved an increase in the total share buyback authorization to $6.5 billion.

Risks

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

In the trailing 12-month period, AIG’s free cash flow declined 9.3% to $5.7 billion. Also, American International's return on equity of 7.1% is lower than the industryaverage of 9.2%. 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.

Other Key Picks

Some other top-ranked stocks in the broader finance space are MetLife, Inc. MET and SelectQuote, Inc. SLQT, each carrying a Zacks Rank of 2 at present.

Based in New York, MetLife is an insurance-based global financial services company providing protection and investment products to a range of individual and institutional customers. The Zacks Consensus Estimate for MET’s 2022 bottom line has increased 5.9% in the past 60 days.

Overland Park, KS-based SelectQuote has a technology-enabled distribution platform, helping clients choose policies from multiple options. The Zacks Consensus Estimate for SLQT’s 2022 bottom line has improved 12% in the past 60 days.


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