The insurer had a poor finish to 2014, and fourth-quarter profits dropped by 67% as the company paid down debts. It has made a remarkable recovery since the credit crisis when the firm had to be bailed out. Under the leadership of the then CEO, Robert Benmosche, the company returned to profitability and repaid the US government what it owed.
Peter Hancock took over from Mr Benmosche last year, and Mr Hancock is determined to get the company a more favourable capital structure, and that requires reducing its net debt position. Mr Hancock also oversaw a stock buyback scheme of $2.5 billion, and it is worth noting the company repurchased $4.9 billion of its own stock last year.
Peter Hancock took the difficult decision to tidy up the capital structure, even though it doesn’t look good for him as he is new in the role, but it will stand to benefit the company down the line.
AIG is the biggest commercial insurer in the US and Canada, and it recently expanded its operation in Europe by acquiring Laya Healthcare in Ireland, and it bought out Ageas in the UK. The commercial division of the group reported a 25% rise in operating profits, and the property-casualty operation saw income increase by 27%.
When AIG reports its first-quarter numbers, the consensus is for revenue of $14.52 and earnings per share (EPS) of $1.19. The fourth-quarter results were not well received, and the adjusted net income came in at $1.37 billion and EPS was 97 cents. The insurer will post its full-year numbers in February 2016, and the market is expecting adjusted net income of $6.58 billion and EPS of $4.91 cents. These forecasts represent a marginal decline in adjusted net income and a 7.2% increase in EPS.
Equity analysts are very bullish on AIG, and out of the 25 ratings, 16 are buys and nine are holds. The average target price is $61.75, which is 8.3% above the current price. Investment banks are also very bullish on American Financial Group, and out of the seven recommendations, five are buys, and two are holds. The average target price is $69, which is 7.6% above the current price.
Since announcing its fourth-quarter numbers in February, the number of short positions on the stock increased by 29%.
AIG has been trading within a tight range recently, and the 200-day moving average is providing support at $54.18, and if that level is held the recent high of $61.02 will be the target. A drop below the 200-day moving average will be bring the support in the $52.50 area into play.
AIG is available for extended hours trading.