American International Group Inc AIG reported its quarterly results, with the operating EPS significantly missing the consensus and the estimates.
Bernstein’s Josh Stirling maintained an Outperform rating on the company, with a price target of $75.
The Miss
“The result included some encouraging signs on fundamentals, but saw a big miss driven by larger than expected headwinds from investment marks running through operating income,” Stirling mentioned.
AIG witnessed significant losses in its hedge fund portfolio. The analyst pointed out that the company’s asset exposure is riskier than average.
The severity of the headwinds was worse than expected, with the company’s operating earnings declined almost 50 percent due to the hedge fund losses, as well as losses in legacy AIG FP and a fair value adjustment for PICC.
Positives
However, Stirling also pointed out that despite these headwinds, the loss ration seems to be improving.
“The firm's underlying accident year loss ratio improved by roughly 1pt from the full year 2015 level, and the commercial underlying AY LR saw 1.7pts versus full year 2015,” the analyst stated.
In addition, the company has also been demonstrating its commitment to cutting costs, having reduced expenses 5 percent year-on-year.
AIG has also been creating value through share buybacks, having repurchased 6 percent of its stock during the quarter.
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