On Friday, Piper Sandler updated its outlook on American International Group (NYSE:NYSE:AIG), increasing the price target to $89 from $87, while reiterating an Overweight rating on the shares.
The adjustment comes as the firm anticipates changes in AIG's business structure, specifically the deconsolidation of its life insurance operation, expected in the third quarter of 2024.
The firm's analysts have modified their earnings model for AIG to reflect the anticipated deconsolidation of the life insurance segment. Although this adjustment results in a reduced earnings per share (EPS) estimate for AIG, the overall valuation of the company is reportedly unaffected.
The rationale behind this view is that the higher values typically assigned to property and casualty (P/C) operations compared to life operations are believed to counterbalance the dilution from the sale of the life insurance business.
In explaining the revised price target, Piper Sandler highlighted that the modest increase accounts for the deconsolidation. The firm's approach to valuation now focuses primarily on AIG's property-casualty business, assigning minimal value to its Corebridge financial ownership. Corebridge is expected to become primarily a funding mechanism for share repurchases post-deconsolidation.
Furthermore, Piper Sandler has applied a higher price-to-earnings (P/E) multiple to AIG's P/C operations. This is based on the expectation that AIG's standalone P/C business should trade at a valuation comparable to its industry peers. Following the deconsolidation, AIG will treat its Corebridge interest as an investment on its balance sheet, similar to how it would manage any other investment.
InvestingPro Insights
As American International Group (NYSE:AIG) prepares for the deconsolidation of its life insurance operation, investors may find additional context in the latest metrics and analyst insights. The company's management has been assertively repurchasing shares, indicating a strong commitment to enhancing shareholder value. This aligns with AIG's high shareholder yield, which may appeal to income-focused investors. Notably, AIG has upheld its dividend payments for 12 consecutive years, a testament to its financial resilience and investor-friendly policies.
On the financial front, AIG's market capitalization stands at $49.91B, with a Price/Earnings (P/E) ratio of 14.15 for the last twelve months as of Q4 2023. This valuation is further substantiated by the company's performance, with analysts predicting profitability this year. While revenue has seen a decline of 14.24% over the last twelve months, AIG remains a prominent player in the insurance industry, and its P/E ratio remains competitive.
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