Right Time to Buy This Stock
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American International Group (NYSE: AIG) reported its third quarter earnings on Friday, posting a $1.9 billion profit, versus a $4 billion loss a year ago. Though earnings exceeded expectations, the Treasury’s hurried exit on Friday diminished investor’s confidence, and the share price fell by 7.2%. AIG’s strong management, growth in its core insurance business, rapid economic growth in Asia, and successful reflation of credit markets has helped it to get back on track.
AIG has shown a remarkable turnaround since it was rescued by the United States Treasury Department in 2008 by a massive bailout package. The company has reported revenue of $17.6 billion, soaring by 38.6% from $12.7 billion, on the year. Benefits, Claims and Expenses have reduced to $15 billion from $17 billion year over year. Higher third quarter profits were a result of big gains on investment holdings of the company.
The names of AIG’s business segments, Chartis and SunAmerica, have been changed to AIG Casualty and AIG Life and Retirement Segment, respectively, in the last quarter. The AIG Property and Casualty business segment posted $786 million of after tax operating income, against $492 million on a quarter over quarter basis. The improvement in after-tax operating income is driven largely by lower catastrophe losses, improvement in underwriting, and higher net investment income. The AIG Life and Retirement business segment surged to $826 million, helped by improvements in equity market performance, consistent management of interest crediting rates, and higher net investment income.
International Lease Finance Corp, the aircraft leasing arm of American International Group, reported operating income of $39 million in the recent quarter, compared to an operating loss of $1.3 billion a year ago when it considered $1.5 billion of impairment charges and fair value adjustments. The company expects a first mover advantage from an insatiable demand from China, which should help profits rise.
A Look Around
Allianz SE (NASDAQOTH: AZSEY.PK), a German insurance and asset management company, reported a 23% rise in its net profit in the second quarter as the company's life insurance business did well. The company’s consistent good result even in difficult market conditions and stability of its operative business shows that the it's on track to achieve its target. AIG and Allianz both are competing for grabbing a bigger share of China’s $50 billion yearly auto insurance business. Allianz offers voluntary auto insurance in China, while AIG has invested in China’s auto insurance market through a purchase of 9.9% stake in PICC. It would be amusing to watch how the two insurers reap benefits out of the new relaxed laws of China.
AXA Group (NASDAQOTH: AXAHY.PK), a French insurance company, has shown a healthy rise in its net income from 2.7 billion Euros in 2010 to 4.3 billion Euros in 2011 in its last annual report. The new French president, François Hollande, has proposed many changes to the nation's tax system like hikes in taxation of dividends and reduction in tax deductibility of interest payments. It’s going to be interesting to see how AXA adapts to the changes.
AIG has maintained a strong capital, with its operating companies aiming effective utilization of deployable capital and increasing their enterprise value. The company is well capitalized, with a debt to total capital ratio of 20% and an appropriate leverage ratio. The rating agencies indicate that the coverage ratios should improve over the next 12 to 18 months, which the company intends to achieve through a combination of liability management and improvements in operating earnings in their core businesses.
AIG's stock price has appreciated over 42% since the beginning of the year and is still attractively priced compared to its peers. The company is trading at about 49% discount to its book value. AIG has had a tremendous turnaround since it was rescued by the U.S. Treasury. The company’s management team should help the company continue this improvement in the future. I recommend a strong buy for the stocks of the company.
Know What You Own
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tarunbachhawat has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.