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AIG is set to finish its financial year on a high note as the largest commercial insurer in North America is performing well across all divisions. In Q3, net income increased by 1% and the company increased its share buyback scheme by $1.5 billion. The investment division was the best performer in the group, and posted a 13% increase in investment income as hedge funds and private equity investments had a strong quarter.
Despite the fact that Prudential Financial and MetLife have experienced declining sales of life insurance policies recently, AIG registered a 15% increase in premiums. The mortgage insurance unit announced an operating profit of $135 million, which compares with $43 million the previous year. The large decline in the number of mortgage holders defaulting on their obligations is a good measurement of how much AIG has changed since the credit crisis.
The turnaround in the company over the past number of years was largely down to former CEO Robert Benmosche, who helped the company repay its $180 billion bailout package to the US government. Even though AIG has already acquired $3.4 billion worth of company shares through a buyback scheme, it plans to expand that by an additional $1.5 billion. Although Mr Benmosche stood down in September due to health reasons, it is thought his replacement Peter Hancock is in a good position to oversee the company’s continued recovery.
Consensus for Q4 earnings is for revenue of $14.04 billion and EPS of $1.05. Figures for Q3 were mixed but well received; revenue came in at $8.63 billion and EPS was $1.21. Traders were expecting $14.54 billion and $1.09 respectively. The company will also announce full-year figures on the same date, and the market is expecting revenue of $55.12 billion and EPS of $4.71. These forecasts equate to a 62% increase in revenue and a 3.2% increase in EPS.
Equity analysts are very bullish on AIG; out of 27 recommendations, 17 are buys and 10 are holds. The average target price is $62.17, which is 21% higher than the current price. Investment banks are also bullish on American Financial Group, and, out of the seven ratings, five are buys and two are holds. The average target price is $64.20, which is 5.6% above the current price.
The number of traders taking short positions on AIG has declined by 13% since the company announced Q3 figures.
AIG shares have been range-bound between $50 and $56 since October. The stock is currently trading at the lower end of the range; if it drops below, the next level of support will be $48. The 200-day moving average at $53.75 is likely to act as topside resistance, but if that level is cleared the target will be $56.
IG offers extended trading hours on over 30 key US stocks, including Gilead, until 1am Mon-Thurs and 10pm Fri (London time).