AIG: Financial Winner, Again
The broad indexes were mixed, after the U.S. Labor Department reported that initial unemployment claims for the week ended March 30 were a seasonally adjusted 357,000 declining from 363,000 the previous week. Continuing claims for the week ended March 24 fell 16,000 to a seasonally adjusted 3.34 million.
Earlier on Thursday, stocks were weak, after yields on Spanish 10-year bonds rose another 12 basis points to 5.81%, their highest level during 2012.
The KBW Bank Index (I:BKX) pulled back slightly to close at 48.86.
AIG's shares have now returned 42% year-to-date, following a 52% decline during 2011.
The shares trade for 11 times the consensus 2013 earnings estimate of $2.89, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.73.
BernsteinResearch analyst Josh Stirling on Wednesday upgraded AIG to an "Outperform" rating from "Market Perform," while raising is price target to $45 from $29, saying the shares had "50% upside from here," from the belief that the company "will be able to sell its remaining non-core assets in coming months, anchor further offerings 'at cost' by the Treasury, and perhaps even exit the government in time for a 'victory lap' before this fall's election," to "drive book value, earnings, and eliminate the number one reason "not to own" this discounted name."
The government owns about 70% of AIG's shares, and Sterling said that "if the markets cooperate, AIG should be able to sell their remaining $22b of non-core assets and anchor coordinated public offerings to retire nearly 65% of the Treasury's $36b stake," and with AIG soon able to "be a buyer in size," the government's $29 cost basis is more likely a floor, than a ceiling, as is still more commonly believed."
On Thursday, Bank of America Merrill Lynch analyst Jay Cohen reiterated his "Buy" rating for AIG, while leaving his price target unchanged at $40, saying that "despite the repurchase of $3 billion of stock from the Treasury last month and net debt retirement of $6.4 billion, we see an even more substantial return of capital to owners ($29 billion) than our previous estimate."
Cohen said share repurchases "of $10 to $11 billion over the next 12 months is possible," including buying back "a substantial among of stock from the U.S. Treasury, "which would seem to be a compelling investment opportunity with the shares trading at 55%-60% of book value."
Cohen raised his first-quarter operating EPS estimate for AIG to $1.14 from 77 cents, and raised his full-year estimate for 2012 to $3.40 from $3.00, "on positive expected marks" on the company's remaining 45% interest in AIA Group. AIG sold 55% of its AIA stake during March, raising about $6 billion in cash.