HSBC adjusted its outlook on shares of American International Group (NYSE:AIG), reducing the price target to $82 from the previous $86 while maintaining a Hold rating on the stock. The adjustment follows an analysis of AIG's financial targets and operational strategies going forward.
The firm highlighted several key points in AIG's investment case, including the expectation that the insurer's underlying loss ratio for the second half of 2024 will mirror the 56.3% recorded in the first half. HSBC's estimate is slightly lower at 56.0%. Looking ahead to 2025, AIG has set a goal for a reported combined operating ratio (COR) of 91.6% or better, while HSBC's estimate stands at 91.0%.
AIG also aims to reduce its corporate general operating expenses (GOE) to a range of $325 million to $350 million. HSBC's projection for AIG's 2025 corporate GOE is in the middle of that range at $340 million. However, as AIG works on decreasing corporate expenses, HSBC anticipates the company will reallocate some of the corporate overheads into its core business during 2025. As a result, HSBC expects AIG's general insurance GOE ratio to increase to 12.6% in 2025 from 12.4% in 2024, before reverting to the 2024 level in 2026.
Lastly, AIG has set a target for a core operating return on equity (RoE) of 10% or higher. HSBC's forecast for AIG's core operating RoE averages 10.5% for the years 2025 to 2027. These projections and targets are part of AIG's broader financial and operational strategy as it moves forward into the mid-2020s.
In other recent news, American International Group (AIG) has reported a series of significant developments. The company appointed Keith Walsh as its new Executive Vice President and Chief Financial Officer, who will assume his role on October 21, 2024. Walsh brings over 25 years of experience in finance leadership within the financial services sector to AIG.
Following its second-quarter earnings release, AIG experienced several adjustments to its stock price targets by financial institutions. Deutsche Bank lowered its price target for AIG shares to $86.00, maintaining a Buy rating. Jefferies reduced its price target to $82 from $84, also maintaining a Buy rating, after reviewing the company's cost savings and revenue projections.
TD Cowen maintained its Hold rating on AIG shares but reduced the price target to $80 from $83 based on revised earnings per share estimates for 2024 and 2025.
In the second quarter of 2024, AIG reported a 38% year-over-year increase in adjusted after-tax income to $775 million. The company's General Insurance net premiums grew by 7%, and underwriting income reached $430 million. AIG's consolidated net investment income saw a 14% increase compared to the previous year, totaling $884 million. However, the company also expressed caution about the potential for increased losses due to natural catastrophes in the latter half of 2024.
InvestingPro Insights
As American International Group (AIG) continues to refine its operational strategies and financial targets, investors and analysts alike are closely monitoring its performance metrics and market position. According to recent data from InvestingPro, AIG has a market capitalization of $47.56 billion and has maintained a track record of dividend payments for 12 consecutive years, with a current dividend yield of 2.15%. This commitment to returning value to shareholders is underscored by management's aggressive share buyback strategy, a move that often signals confidence in the company's future prospects.
Despite a challenging environment, AIG remains a prominent player in the insurance industry, with a price to book ratio over the last twelve months as of Q2 2024 standing at 1.08, which could suggest the stock is reasonably valued given its tangible assets. Additionally, analysts predict the company will remain profitable this year, with a notable revenue growth of 16.0% over the last twelve months as of Q2 2024. However, they also anticipate a sales decline in the current year, which is an important consideration for investors looking at the short-term performance.
For those seeking more detailed analysis and additional insights, there are further InvestingPro Tips available, which could provide a deeper understanding of AIG's financial health and market position. These tips are part of the comprehensive analysis provided by InvestingPro, which includes a fair value estimation currently set at $88.71, indicating potential undervaluation at the stock's previous close price of $74.3.
For more in-depth information, including exclusive InvestingPro Tips that can help investors make informed decisions, visit https://www.investing.com/pro/AIG. With several additional tips listed on InvestingPro, investors have access to a wealth of knowledge that can inform their investment strategies concerning AIG.
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