Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and American International Group (AIG +0.40%) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, kneejerk reaction that turns out to be exactly the wrong response to the news
After having taken an enormous bailout package that helped it survive the financial crisis, AIG has rebounded and retaken control of its own destiny, having finally rid itself of U.S. government ownership. With that obstacle behind it, what will AIG do next? Let's take an early look at what's been happening with AIG over the past quarter and what we're likely to see in its quarterly report on Thursday.
Stats on AIG
|
Analyst EPS Estimate |
($0.09) |
|
Year-Ago EPS |
$0.82 |
|
Revenue Estimate |
$8.70 billion |
|
Change From Year-Ago Revenue |
(3%) |
|
Earnings Beats in Past 4 Quarters |
4 |
Source: Yahoo! Finance.
Will AIG insure shareholder happiness?
Analysts have pulled back considerably on their estimates for AIG, reversing an initial call for a profit of $0.56 per share three months ago to their current consensus for a loss. Yet the stock has risen nearly 23% since mid-November, reflecting the overall optimism that investors have for the insurance giant.
Many investors find it hard to evaluate AIG without emotions coming into play, because of the role the company played in the near-meltdown of the financial system in 2008. But now, value investors like Bruce Berkowitz and analyst firm Bernstein Research believe that AIG might be an unprecedented bargain opportunity. Trading at just half its book value, AIG is arguably highly discounted compared to property and casualty insurers Allstate (ALL +1.12%) and Travelers (TRV +1.80%), both of which trade above book value even after having faced multiple catastrophic events in the past couple of years.
AIG has also taken big steps to return to its core insurance roots. In December, it sold an 80% stake in its International Lease Finance airplane leasing business to a consortium of Chinese investors for $4.23 billion, with the option for the buyers to take another 10% stake in the future. Over time, sales like this helped AIG pay back the New York Federal Reserve and buy out the U.S. Treasury's position in the company.
Low interest rates continue to hamper AIG, though. In particular, with the company retaining some life-insurance risk, low rates threaten future returns on premium float. That's likely one reason the company's valuation is so low, as fellow life insurer MetLife (MET 1.18%) also fetches a low price-to-book right now. Low rates have also motivated Hartford Financial (HIG +1.30%) to focus on its property and casualty lines, which may prove to be a direct attack on AIG's future strategy.
Investors need to watch AIG's report closely to see what CEO Bob Benmosche's next move for the insurance giant will be. With most of the heavy lifting having been done, AIG needs to move forward with strategies to compete against rivals and grow back toward being the industry leader it was before the financial crisis.
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