Insurance Stocks

American International Group Inc Valuation – March 2019 #AIG

Company Profile (excerpt from Reuters): American International Group, Inc. (AIG), incorporated on June 9, 1967, 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 Company’s offerings include products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. Its Core businesses include Commercial Insurance and Consumer Insurance, as well as Other Operations. Commercial Insurance includes two modules: Liability and Financial Lines and Property and Special Risks. Consumer Insurance consists of four modules: Individual Retirement, Group Retirement, Life Insurance and Personal Insurance. It also reviews and assesses its core business through the locations of its insurance operations across three geographic modules: the United States, Europe and Japan.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AIG – March 2019

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 $37,361,814,481 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 -110.67% Fail
5. Moderate PEmg Ratio PEmg < 20 21,490.00 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.67 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.00
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $0.03
MG Value based on 0% Growth $0.02
Market Implied Growth Rate 10740.75%
Current Price $42.98
% of Intrinsic Value N/A

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, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $4.17 in 2015 to an estimated $0 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 10740.75% 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 below the price.

At the time of valuation, further research into American International Group Inc revealed the company was trading below its Graham Number of $75.74. The company pays a dividend of $1.28 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21490, which was above the industry average of 26.11.

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 $75.74
PEmg 21,490.00
PB Ratio 0.67
Dividend Yield 2.98%
TTM Dividend $1.28
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $34,540,000,000
Total Assets $491,984,000,000
Intangible Assets $4,082,000,000
Total Liabilities $434,675,000,000
Shares Outstanding (Diluted Average) 890,110,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.92
Dec2018 -$0.01
Dec2017 -$6.54
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.00
Dec2018 -$1.34
Dec2017 -$0.96
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

Recommended Reading:

Other ModernGraham posts about the company

American International Group Inc – June 2018 $AIG
American International Group Inc Valuation – March 2017 $AIG
Best Stocks Below Their Graham Number – January 2017
21 Best Undervalued Stocks of the Week – 8/27/16
Best Stocks Below Their Graham Number – August 2016

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Disclaimer:

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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