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American International Group Q4 Earnings Preview: What To Watch

 February 15, 2013 10:32 AM
 


(By Mani) American International Group, Inc. (NYSE: AIG) is expected to report a loss when it announces its fourth-quarter financial results on Feb.21. The New York-based insurer's results could be hit by the losses incurred from superstorm Sandy.

In December, AIG said its preliminary estimate of the company's after-tax losses related to Storm Sandy, net of reinsurance, will total about $1.3 billion, which came in twice market expectations, suggesting that its gross losses could be outsized.

Wall Street expects AIG to report a loss of 9 cents a share for the fourth-quarter. In the same quarter last year, AIG earned 82 cents a share. For the full-year, analysts' expect earnings of $3.75 a share, up from $1.02 a share last year.

[Related -American International Group Inc (AIG): Current Weakness Offers A Buying Opportunity]

The company is reporting a loss after recording earnings beat for the past four quarters with an average upside surprise of 45 percent. Over the past 60 days, the consensus estimate has come down from a loss of 14 cents.

Quarterly revenues are also expected to fall 3 percent to $8.70 billion from $8.96 billion in the fourth quarter of 2011. Analysts expect full-year revenue to drop 1.1 percent to $35.31 billion.

Investors should watch the performance of the company's core property and casualty (P&C) segment, formerly called Chartis. In the third quarter, the P&C segment operating income rose to $786 million from $492 million last year, and combined ratio improved nine basis points to 105 percent. Net premiums earned slipped 3.2 percent to $8.8 billion.

[Related -American International Group Inc (AIG): Buy This 'Hated' Company While It's Still An Incredible Bargain]

Another segment to watch will be the retirement unit. The segment's yield is a closely watched metric. During the third quarter, the unit's operating income jumped to $826 million from $471 million last year. Premiums, deposits and other considerations were lower at $4.8 billion, compared with $5.9 billion last year.

Book value, a key metric calculated by assets minus liabilities, at the end of the third quarter was $61.49 per share, up 10 percent from the sequentially.

During the October to December period, the U.S. Treasury sold its remaining stake in AIG for a profit of more than $22 billion and recovered $205 billion after its $182 billion bailout in 2008 crisis.

AIG had also agreed to sell a 90 percent stake in its aircraft-leasing arm International Lease Finance Corp. or ILFC, for about $4.75 billion in two tranches to an investor group led by Weng Xianding, the Chairman of New China Trust Co. Ltd. The deal that values the whole of ILFC at about $5.28 billion is expected to close in the second quarter of 2013.

In addition, AIG no longer holds any stake in AIA following the sale of its final 16 percent holding in mid-December.

For the third quarter ended Sept.30, AIG reported net income of $1.9 billion or $1.13 per share, compared with a net loss of $4 billion or $2.10 per share last year. Excluding special items, operating income for the quarter totaled $1.6 billion or $1.00 per share, compared with an operating loss of $3 billion or $1.58 per share a year ago.

Meanwhile, valuation continues to look attractive with some risk of near-term stagnation. AIG shares continue to hover around 50 percent of book value, and, while there are shortcomings associated with price-to-book valuations, it is one method among others to suggest that shares seem undervalued.

AIG's forward P/E ratio, one of the most widely-used stock analysis tools stands at 11 times its 2013 consensus earnings estimate, in line with The Travelers Companies, Inc. (NYSE:TRV) and higher than The Allstate Corporation's (NYSE:ALL) 9.88 times.

Over the past three months, , the stock gained 26 percent and has been trading between $27.04 and $39.90 during the past 52-weeks. Out of the 21 analysts covering the stock, 12 of them rate it as "strong buy," or "buy," while the remaining 9 recommend "hold." There were no "sell" ratings on the stock.

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