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Market Underestimating AIG's Prospects

Some may be skeptical of the firm's turnaround efforts, but we still see plenty of opportunities to improve the business.

Market Underestimating AIG's Prospects

Brett Horn, CFA

Nov 16, 2016

Brett Horn: AIG is a complicated enterprise. There's a lot of noise surrounding the company right now. But in our view, it's fundamentally a simple story.

We think it's really the previous management team's growth-first, undisciplined philosophy that led to its historical issues. Current CEO Peter Hancock, while his tenure has not been mistake-free, has really set a course in the opposite direction. We think AIG has quantifiable opportunities to improve returns by divesting noncore businesses, exiting problematic lines, and improving operating efficiency.

The market has taken a very skeptical view of the company's turnaround efforts, pricing the stock at only about 0.7 times book value. And recently, the stock took a step back following somewhat weak third-quarter results.

Our valuation is close to book value. We think the market is materially underestimating the company's prospects going forward. But while we do expect returns to improve, we don't really see a basis for a moat for AIG in the long run.

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