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The Case for Holding Onto American International (AIG) Shares

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American International Group, Inc. AIG stands strong in the market with its robust Global Commercial business, increasing net investment income, and flourishing new business ventures.

The company’s successes in the General Insurance sector, coupled with improving insurance rates and strategic divestitures, are paving the way for enhanced business effectiveness and enriched capital distribution.

Being a prominent global insurance entity, AIG offers comprehensive solutions in property casualty insurance, life insurance, retirement options, and various financial services.

Zacks Rank & Price Performance

Currently holding a Zacks Rank #3 (Hold), American International has seen its stock rise by 24.6% in the past six months, outperforming the industry’s growth of 15.9%.

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Rising Estimates

Projections indicate a 4.7% elevation in AIG’s 2024 earnings per share to $7.11 from the prior year’s $6.79. Additionally, the forecasted revenue for 2024 is $49.2 billion.

This follows a pattern of exceeding earnings expectations for the past four quarters, with an average surprise of 11%.

Key Growth Catalysts

A substantial part of AIG’s revenue derives from premiums, set to rise further due to impressive performance in commercial lines and escalated pricing. Predictions suggest a 9.9% year-over-year revenue growth for 2024.

The General Insurance wing, accounting for 56.2% of adjusted revenues in 2023, experienced a boost in the fourth quarter, led by improved performances in the Lexington and Global Commercial divisions. Notably, North America Commercial is expected to drive results in light of impressive growth in net premiums through Lexington and Retail Property. The Lexington business, in particular, has witnessed enhanced outcomes due to strong retention, raised rates, and new business ventures.

Net investment income observed an impressive 24% annual increase in 2023. The anticipated high-interest rate environment is slated to further amplify net investment income. AIG has tactically repositioned its General Insurance portfolio to leverage higher yields without compromising credit quality and duration standards. Consequently, a projected 8% year-over-year growth in net investment income is on the horizon for 2024.

By aiming to deliver over 10% adjusted return on capital employed, AIG has made significant progress. The achieved 2023 adjusted ROCE of 9% marks an improvement from 7.1% in 2022. Noteworthy initiatives such as Corebridge’s separation, enhanced underwriting practices, debt reduction, dividend increments, and the AIG Next program are all contributing to the company’s objective realization.

In 2023, AIG distributed $3 billion in repurchases and $1 billion in dividends to its shareholders, mirroring a well-balanced capital management approach. This underscores the attractiveness of AIG shares for investors seeking dividend returns.

Nonetheless, AIG’s high leverage poses a concern, with total short-term and long-term debts at $19.8 billion by the last quarter, against a cash balance of $2.2 billion. Expectedly, interest expenses are anticipated to climb by 11% in 2024. Notwithstanding, with a long-term debt-to-capital ratio of 30.4% at year-end, slightly above the industry’s 26.8% average, a systematic and strategic growth plan remains paramount.

Stocks to Watch

In the insurance realm, notable stocks to monitor are CNO Financial Group, Inc. CNO, Erie Indemnity Company ERIE, and Assurant, Inc. AIZ. CNO Financial shines with a Zacks Rank #1 (Strong Buy), while Erie Indemnity and Assurant hold a Zacks Rank #2 (Buy) at the moment. Details on today’s top Zacks #1 Rank stocks can be found here.

CNO Financial’s earnings surpassed estimates in two of the last four quarters, with an average beat of 3.62%. Projections for CNO’s 2024 earnings signal a 2.6% improvement from the previous year.

Over the past 60 days, expectant figures for CNO’s 2024 earnings have climbed by 4.3%.

Erie Indemnity witnessed surpassing earnings estimates in three of the last four quarters, with an average surprise of 11.24%. Forecasts for ERIE’s 2024 earnings depict an 18.3% uptick, alongside an 11.4% revenue enhancement compared to the previous year.

Within the last 30 days, projections for ERIE’s 2024 earnings have shot up by 2.4%.

Assurant outperformed earnings predictions in all of its previous four quarters, boasting an average surprise of 42.15%. Expectations point to a 3.4% surge in AIZ’s 2024 earnings and a 4.1% revenue increase compared to the prior year’s records.

The consensus for AIZ’s 2024 earnings has edged up by 1.4% in the last 30 days.

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All expressed viewpoints in this article are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.

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