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American International Group’s stock (NYSE: AIG) has gained around 9% YTD, while the S&P500 is up 15% over the same period. Notably, American International Group’s peer Travelers (NYSE: TRV) is also up 9% YTD. Overall, at its current price of $74 per share, AIG is trading 13% below its fair value of $85 – Trefis’ estimate for American International Group’s valuation.

Amid the current financial backdrop, AIG stock has seen extremely strong gains of 90% from levels of $40 in early January 2021 to around $75 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. AIG is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 50% in 2021, 11% in 2022, and 7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that AIG underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AIG face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

AIG surpassed the street estimates in the first quarter of 2024, with total revenues increasing 15% y-o-y to $15.6 billion. It was mainly driven by an 11% rise in net investment income (NII) and a decrease in net realized losses from $1.9 billion to $424 million. However, the positive impact was somewhat offset by a 4% decrease in the total premiums, which suffered due to a drop in the North America segment (part of general insurance). On the cost front, total benefits & expenses as a % of revenues witnessed a favorable drop due to lower policyholder benefits and losses in the quarter. That said, it was partially offset by an increase in income attributable to non-controlling interest ($501 million) due to the increase in the non-controlling interest on Corebridge. Overall, the adjusted net income jumped from $23 million to $1.19 billion.

The top line decreased 14% y-o-y to $46.8 billion in FY 2023. It was primarily because of a change in total net realized gains from $7.06 billion to -$4.61 billion, partially offset by positive growth in total premiums and net investment income. In addition to the lower revenues, the expense figure increased 7% y-o-y. It led to a 65% reduction in the adjusted net income to $3.61 billion.

Moving forward, we estimate the American International Group revenues to touch $47.9 billion in FY2024. Additionally, AIG’s adjusted net income margin is likely to see some improvement in the year, leading to an annual EPS of $7.01. This coupled with a P/E multiple of just above 12x will lead to a valuation of $85.

[1] Returns as of 6/20/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.