American International Group Inc Valuation – March 2017 $AIG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American International Group Inc (AIG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American International Group, Inc. is a global insurance company. The Company provides a range of property casualty insurance, life insurance, retirement products and other financial services to commercial and individual customers. Its segments include Commercial Insurance, Consumer Insurance, Other Operations and Legacy Portfolio. The Commercial Insurance segment is a provider of insurance products and services for commercial customers. It includes property casualty networks. The Consumer Insurance segment is a franchise that brings together a portfolio of retirement, life insurance and personal insurance products offered through multiple distribution networks. The Other Operations segment consists of businesses and items not attributed to its Commercial and Consumer modules or its Legacy Portfolio. The Legacy Portfolio segment includes Legacy Property and Casualty Run-Off Insurance Lines, as well as Legacy Life Insurance Run-Off Lines and Legacy Investments.

AIG Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AIG – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $61,967,130,248 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -100.59% Fail
5. Moderate PEmg Ratio PEmg < 20 24.28 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.90 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.59
MG Growth Estimate 15.00%
MG Value $99.74
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $37.56
MG Value based on 0% Growth $22.02
Market Implied Growth Rate 7.89%
Current Price $62.91
% of Intrinsic Value 63.07%

American International Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.3 in 2013 to an estimated $2.59 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.89% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into American International Group Inc revealed the company was trading below its Graham Number of $84.09. The company pays a dividend of $1.28 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 24.28, which was above the industry average of 18.78.

American International Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $84.09
PEmg 24.28
PB Ratio 0.90
Dividend Yield 2.03%
TTM Dividend $1.28
Number of Consecutive Years of Dividend Growth 5


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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $30,912,000,000
Total Assets $498,264,000,000
Intangible Assets $0
Total Liabilities $421,964,000,000
Shares Outstanding (Diluted Average) 1,091,085,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.10
Dec2016 -$0.78
Dec2015 $1.65
Dec2014 $5.20
Dec2013 $6.13
Dec2012 $2.04
Dec2011 $11.01
Dec2010 $11.60
Dec2009 -$90.48
Dec2008 -$756.85
Dec2007 $47.80
Dec2006 $107.20
Dec2005 $79.80
Dec2004 $73.80
Dec2003 $70.60
Dec2002 $43.40
Dec2001 $30.80
Dec2000 $46.60
Dec1999 $46.80
Dec1998 $38.40
Dec1997 $32.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.59
Dec2016 $2.17
Dec2015 $4.17
Dec2014 $6.02
Dec2013 $0.30
Dec2012 -$56.58
Dec2011 -$109.06
Dec2010 -$158.11
Dec2009 -$202.81
Dec2008 -$202.54
Dec2007 $75.03
Dec2006 $84.08
Dec2005 $68.24
Dec2004 $59.32
Dec2003 $50.60
Dec2002 $40.80
Dec2001 $39.31

Recommended Reading:

Other ModernGraham posts about the company

Stocks Trading Below Their Graham Number – July 2016
5 Companies for Enterprising Investors Near 52 Week Lows – June 2016
Stocks Trading Below Their Graham Number – June 2016
Stocks Trading Below Their Graham Number – May 2016
Stocks Trading Below Their Graham Number – March 2016

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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