American International Group’s stock (NYSE: AIG) has lost around 9% YTD, while the S&P500 is up 15% over the same period. Further, at its current price of $58 per share, it is trading 18% below its fair value of $71 – Trefis’ estimate for American International Group’s valuation.
Interestingly, AIG stock had a Sharpe Ratio of 0.1 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
AIG outperformed the consensus estimates in the second quarter of 2023, despite a 3% y-o-y drop in the total revenues to $13.22 billion. It was mainly due to a change in total net realized gains from $2.6 billion to -$297 million. That said, the top line was supported by a 21% increase in the premiums, followed by a 37% jump in the net investment income. The premiums figure primarily benefited from growth in the North America segment and institutional markets category. On the expense front, total benefits, losses, and expenses as a % of revenues witnessed an unfavorable increase in the quarter. It resulted in a 46% y-o-y drop in the adjusted net income to $1.49 billion.
The top line decreased 15% y-o-y to $24.2 billion in the first half of FY2023. It was mainly due to a change in total net realized gains from $6.21 billion to -$2.21 billion. However, the impact was somewhat offset by growth in premiums and net investment income. In addition to lower revenues, the expense figure grew 19% y-o-y. This led to a 78% reduction in the adjusted net income to $1.51 billion.
Moving forward, we estimate the American International Group revenues to remain around $50.82 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 $6.99. This coupled with a P/E multiple of just above 10x will lead to a valuation of $71.
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