On Wednesday, Evercore ISI adjusted its outlook on American International Group (NYSE:AIG) shares, reducing the price target to $78.00 from the previous $81.00 while keeping an In Line rating on the stock. The revision follows a comprehensive review that led to changes in the firm's financial forecasts for AIG.
The firm's analyst cited several factors for the adjustment, including the deconsolidation of certain operations earlier than anticipated, an increase in the projected tax rate to 24% from 23%, and variations in net investment income (NII). Additionally, higher natural catastrophe losses and lower alternative NII were noted, though partially offset by the positive impact of share repurchases and higher fixed income NII due to expected increases in new money yields.
Evercore ISI also revised its earnings per share (EPS) estimate for the second quarter of 2024 to $1.33, down from $2.00. This change reflects the updated tax rate, a decrease in NII from other operations, and the impact of higher natural catastrophe losses. The firm anticipates these factors to contribute to an approximately 4% reduction in the 2025-2026 EPS estimates.
Looking ahead, the report incorporates expectations around American International Group's sell-down of its stake in Corebridge Financial Inc. (CBRG). The analysis includes the anticipated sale of 3% of CBRG in the third quarter of 2024 and 7.5% in the fourth quarter at a valuation of approximately $18.5 billion. This is expected to precede the finalization of a 20% sale to Nippon in the first quarter of 2025. AIG is projected to further reduce its stake by another 7.5% in the second quarter of 2025, aiming to maintain a 10% ownership in line with the Nippon agreement.
The report also considers the impact of AIG's operational efficiency initiative, AIG Next, which is expected to save the company $500 million. However, underlying expense growth may lead to total general operating expenses (GOE) for 2026 being approximately $3.4 billion. The firm's analyst also anticipates additional share buybacks funded by the proceeds from the sale of AIG's Travel business to Zurich.
In other recent news, Zurich Insurance has broadened its reach in the travel insurance market with the acquisition of AIG's global personal travel insurance and assistance business for $600 million. This strategic move is set to enhance Zurich's position in the market, particularly in the United States, by integrating the acquired business into its existing travel insurance provider, Cover-More Group.
In parallel, AIG has been making significant strides in reshaping its financial landscape. BofA Securities has raised the price target for AIG shares to $84.00, maintaining a Neutral rating, following a shift in its valuation approach. This adjustment comes in light of AIG's aggressive share repurchase strategy and the completion of the deconsolidation of Corebridge Financial, Inc. for accounting purposes.
Moreover, AIG has reduced its pro forma ownership of Corebridge to around 48.4% by selling an additional 30 million shares. This move aligns with AIG's strategic decisions to monetize its life insurance stake in Corebridge and implement cost efficiency programs, including an aggressive cost-cutting measure targeting a 13% expense reduction.
Analysts from firms such as Keefe, Bruyette & Woods, Piper Sandler, and Morgan Stanley have maintained their ratings on AIG's stock, while BMO Capital Markets has given an Outperform rating with a price target raised to $89.00. These recent developments highlight AIG's strategic moves and their potential impact on the company's future.
InvestingPro Insights
Amidst the adjustments and forecasts presented by Evercore ISI, American International Group (NYSE:AIG) exhibits a blend of strengths and challenges as reflected in real-time data and InvestingPro Tips. With a market capitalization of $49.02 billion and a forward-looking P/E ratio of 10.43, AIG shows a valuation that may appeal to value investors. Additionally, the company's Price to Book ratio stands at a modest 1.13, suggesting that the stock is not overvalued in terms of its net asset value.
InvestingPro Tips highlight that AIG's management has been actively engaging in share buybacks, which can signal confidence in the company's value and often results in earnings accretion. Furthermore, AIG's commitment to shareholder returns is evident with a high shareholder yield and a track record of maintaining dividend payments for 12 consecutive years. These factors are particularly relevant in light of the firm's anticipation of additional share buybacks. Moreover, AIG's status as a prominent player in the Insurance industry adds a layer of stability to its profile.
For readers looking to delve deeper into AIG's financial health and future prospects, InvestingPro offers additional insights and tips. There are currently 6 additional InvestingPro Tips available, which can be accessed through the dedicated AIG page on Investing.com. To explore these valuable insights, prospective subscribers can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing their investment research with expert analysis and in-depth data.
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