At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best...
When the Treasury Department announced last week that it was freezing the CEO salaries at U.S. "subsidiaries" Ally Financial, General Motors
With federal regulators under pressure to minimize cash outlays to the bosses of the businesses it's taken as its wards, Mr. Benmosche, who took over AIG to help turn around the fledgling insurance giant, can expect to receive the vast majority of this year's $10.5 million pay package in the form of stock. On one hand, that sounds like a good idea. It should incentivize him to get the business back on track ahead of the government's planned sale of its remaining 70% stake in the company. On the other hand, it stands to give Mr. Benmosche a big payday.
Or so it seems to the analysts at Wells Fargo
And that number could even be conservative.
Consider: Shares of AIG have generally lagged the market's rise over the past year, underperforming the S&P 500 by about 10 percentage points. As a result, this $33 stock still costs a bare 3.5 times trailing earnings -- a fraction of the 19 times valuation at Berkshire Hathaway
Free at last
Key to Wells' buy thesis on AIG is that once free of government control, Mr. Benmosche will have even greater incentive "to become an increasingly active capital manager, which could be accretive to the company's earnings per share and return on equity." Wells posits fiscal 2012 earnings of $3.06 per share for AIG in 2012, and $3.38 per share in 2013. These numbers lap consensus projections by 12% and 17%, respectively, and appear to predict an absolute surge in profitability at the company post-spinoff from the U.S. Government.
With AIG's "combined ratio" on property and casualty underwriting finally falling, after years of inexorable (and unprofitable) hikes, the company looks to be on the right track to prove Wells right -- and maybe even make shareholders rich in the process.
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Fool contributor Rich Smith does not own or short shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 347 out of more than 180,000 members. The Motley Fool has a disclosure policy.
The Motley Fool owns shares of Wells Fargo. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo and General Motors.
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