We came across a long thesis on American International Group Inc (NYSE:AIG) on ValueInvestorsClub by unlatchmergers. In this article we will summarize the bulls’ thesis on AIG. The company’s shares were trading at $75.38 when this thesis was published, vs. closing price of $72.59 on Jan 7th.
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American International Group Inc (NYSE:AIG) is one of the largest insurance and financial services firms in the world and has a global footprint. It operates through a wide range of subsidiaries that provide property, casualty, and life insurance.
After the bailout following the global financial crisis in 2008, American International Group Inc (NYSE:AIG) has had a long 10+ years journey to transform its business and regain public trust. The author believes that through a series of transformations, operational improvements and divestitures, the company has become able to rival industry leaders like Chubb – AIG reached an LTM combined ratio of 86.8%, significantly above that of Chubb. He argues that the increase is driven by structural improvements in the cost management of the company. Also, after several divestitures of less profitable operations, the company became attractive based on the potential to generate outsized EPS growth while being less exposed to systematic risk through better capital flexibility – the divestitures have streamlined the company’s underwriting focus and allow for more targeted and efficient resource allocation. AIG is positioned better than most peers as management has successfully imposed better pricing discipline, tightened risk limits, and purchased more extensive reinsurance.
Furthermore, the author points out that AIG’s valuation is attractive as well, at 10.9x FY2025E EPS. The company has Deferred Tax Assets worth ~$5 per share, which will reduce the present value of future income taxes paid. With that being said, the projected EPS growth over the next 3 years stands at 20%, significantly above the consensus, which yields a target stock price of $121.00, or 71% potential upside, with the assumption that such robust and better-than-expected growth will also drive an expansion in the valuation multiple.
While we acknowledge the potential of AIG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AIG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.