On Monday, Jefferies updated its model for American International Group (NYSE:AIG), resulting in a minor adjustment to the company's price target. The firm has lowered the target to $82 from $84 while maintaining a Buy rating on the insurer's shares. The adjustments come after recent discussions with AIG's management and a review of the company's cost savings and revenue projections.
The earnings per share (EPS) estimates for AIG remain relatively stable, with a slight decrease of 2% to $4.90 for 2024 and a 1% increase to $6.90 for 2025. The revised price target reflects a 17% upside potential from the previous target. The firm's analysts have also fine-tuned their EPS estimates for the following years, slightly increasing them by 5 cents each to $6.90 for 2025 and $8.50 for 2026.
In the second quarter of 2024, AIG management indicated that they expect to achieve their $500 million expense savings target related to the AIG Next initiative by 2025. This is anticipated to reduce corporate general and administrative expenses to no more than 1.5% of net premium earned, or between $325 million and $350 million in 2025. Jefferies' model assumes $647 million for 2024 and $350 million for the subsequent year.
The General Insurance expense ratio (ER) is projected at 32.1% for 2024, a slight improvement from the adjusted 32.4% in 2023. This forecast includes a 19.1% acquisition cost ratio and a 13.0% operational expense ratio for 2024, compared to the adjusted 13.2% in the previous year. Further improvements are expected in the ER for 2025 and 2026, with estimates of 30.9% and 30.8%, respectively.
Jefferies also provided estimates for the combined ratio (CR), which measures the incurred losses and expenses in relation to earned premiums, forecasting 92.2% for 2024, 89.7% for 2025, and 89.3% for 2026. These projections are balanced by a modest increase in net investment income (NII) expectations.
The price target reduction to $82 is also an effort to refine the core book value estimate, which excludes AIG's stake in CRBG and deferred tax assets (DTA). The firm anticipates a 6% decline in core book value for 2024 and a 10% growth in 2025, with core return on equity (ROE) projected at 10.9% for 2025 and 11.2% for 2026.
In other recent news, American International Group (AIG) posted a considerable growth in the second quarter of 2024, with a 38% year-over-year increase in adjusted after-tax income to $775 million. AIG's General Insurance net premiums grew by 7%, and underwriting income reached $430 million. The company's consolidated net investment income also saw a 14% increase compared to the previous year, totaling $884 million. AIG returned almost $2 billion to shareholders through stock repurchases and dividends.
However, Piper Sandler reduced its price target for AIG from $89.00 to $86.00, maintaining an Overweight rating on the stock. The adjustment follows a quarter that fell short of expectations due to higher-than-anticipated catastrophe losses, particularly at the international level. The firm noted that the comparison of the quarterly results with past performance and projections is now more challenging due to the recent deconsolidation of AIG's life operation.
InvestingPro Insights
As we consider the future of American International Group (NYSE:AIG), it's important to provide a holistic view of the company's financial health and market position. According to InvestingPro data, AIG has a market capitalization of $46.16 billion and revenue of $45.92 billion over the last twelve months as of Q2 2024. This reflects a significant revenue growth of 16.0%, despite a quarterly decline of 10.84%. The data also reveals a gross profit margin of 28.59% and an operating income margin of 11.02%, indicating a solid profitability framework.
InvestingPro Tips highlight that AIG's management has been actively repurchasing shares, which can be a signal of confidence in the company's valuation and future prospects. Furthermore, the firm has maintained dividend payments for 12 consecutive years, with a current dividend yield of 2.22%, showcasing a commitment to shareholder returns. However, it is also noted that 11 analysts have revised their earnings estimates downwards for the upcoming period, which may warrant attention from investors evaluating the stock.
For those seeking more in-depth analysis, there are additional InvestingPro Tips available that delve into AIG's financial metrics and industry standing. These insights, including the company's short-term obligations versus liquid assets, and the prediction of profitability for the current year, can be found on the InvestingPro platform, offering a deeper understanding of AIG's investment potential.
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