Enough Whining, AIG Deal Was a Winner: Street Whispers

Sterne Agee analyst John Nadel on Monday said that even though the $5.75 billion secondary offering and AIG buyback were "somewhat smaller than expected... the key provision, in our view, is the 30-day lock-up (much shorter than prior 60- and 90-day lock-ups), which suggests to us another offering/buyback coming before the end of 3Q12."

Nadel added that AIG "will be freed from its lock-up on September 4th to sell its remaining stake in Asian insurer AIA Group, currently worth an estimated $7.5 billion," and that if the company sells its entire 19% stake in AIA, "we expect AIG will have buyback capacity between $7.5 - $10.0 billion for the next secondary offering by Treasury, meaning calendar year 2012 buybacks will likely end up totaling between $15.5 - $18.0 billion." This means the government's remaining stake in AIG could be cut in half by the end of the year.

Nadel rates AIG a "Buy," with a price target of $39, and said that his firm's estimates "assume $4b of buybacks in 3Q12 at an average price of $30 and another $7b of buybacks in 4Q12 at an average price of $31."

"We estimate each $1b change in buybacks would result in about a 2% change in our 2013/14E EPS and about a 5-10bps change in forecasted return on equity. Each $1 change in the assumed share price for buybacks would result in about a 1% change in our 2013/14E EPS," he said.

Investors were pleased, sending AIG's shares up over 3% in afternoon trading, to $32.31.

AIG's shares closed at $31.34 Friday, returning 35% year-to-date.

AIG data by YCharts

The shares traded for nine times the consensus 2013 EPS estimate of $3.37. The consensus 2012 EPS estimate is $3.88.

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