Is AIG Safe to Own After Earnings, With Buybacks and Analysts Hiking Views?

AIG posted $1.32 in earnings per share, versus $2.10 a year ago, but higher than the $1.23 consensus from Thomson Reuters. On an after-tax operating basis, the insurer posted $1.39 in earnings per share, which included approximately $3.7 billion cash from the sale of 86.9 million shares of stock in AerCap. AIG received about $400 million from the sale of Springleaf Holdings shares.

AIG also appears to have paid down over $3 billion in debt, and in the second quarter alone it repurchased approximately 40 million common shares for some $2.3 billion. AIG went a step further and showed that it has even repurchased about $965 million in additional common stock through the end of July.

AIG’s dividend yield now is only about 0.8%. Still, analysts have been positive after earnings. These are some of the broader analyst price target hikes we have seen this week after earnings:

• RBC Capital Markets maintained its Outperform rating and raised its price target to $69 from $67.
• BMO Capital Markets has an Outperform rating and raised its target to $71 from $67.
• Argus maintained a Buy rating and raised its price target of $65 to $70.
• Bank of America Merrill Lynch raised its Buy rating and price objective to $70 from $67, but it was a tad more cautious.

Merrill Lynch also said the earnings beat was not as much as the headline strength suggests, based on unsustainable factors, and it trimmed some normalized operating expectations as well.

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With an earnings per share expectation of $4.98 for 2015 and $5.52 per share in 2016, AIG is now valued at roughly 12 times a blended forward earnings per share expectation. Its $63.00 share price compares to a 52-week range of $48.56 to $64.93. The consensus price target is $67.89 and the highest analyst price target is $75.00.