Analyst Review on American International Group Inc (NYSE:AIG) Performance

May 20, 2016

Senior Equity Analyst Brett Horn of Morningstar shares his review of American International Group Inc (NYSE:AIG), which he says is trading at a substantial discount.

…We don’t think that AIG ever will have an economic moat, but it trades for 0.7 times book, and, in my opinion, management, while they certainly have their stumbles recently, has a reasonable plan in place to get the company back to acceptable returns. Even if they don’t, they have activists like outside investor Carl Icahn who is going to hold them accountable. If they can’t execute, you’re going to see a change.

So I think there is greater possibility for them and for AIG’s underlying performance to improve over time. Our valuation is roughly book value. I said we don’t consider it a high-quality franchise, but I think there’s potential for the underlying results to improve and for the stock to get repriced a bit higher in the coming years.

…A lot of the problems leading up to crisis — even AIG, it never participated in credit default swaps — was that the underlying franchise had historically struggled quite a bit because of a lack of discipline. Peter Hancock has a reverse course on that. I think he gets it. He’s trying to change the culture and to reduce costs, and that’s really the only thing that a manager at an insurance company can do.

These things take time. AIG is a very large organization. They are not going to switch on a dime, but I think he is laying the groundwork. Admittedly, 2015 was something of a lost year in terms of making improvements on that score, but I think the overall plan is sound, and he just needs some time to execute it.