On Monday, BMO Capital adjusted its outlook for American International Group (NYSE:AIG) shares, increasing the price target to $89.00 from the previous $88.00, while reiterating an Outperform rating on the stock. The revision reflects the firm's analysis of AIG's future earnings prospects, particularly in the year 2026.
The firm's assessment suggests that AIG's current valuation is relatively low when considering projected earnings for 2026. AIG's price-to-earnings ratio for that year is estimated at approximately 8.8 times, which is notably lower than the average of over 10 times for its industry peers.
BMO Capital emphasizes that 2026 is pivotal for AIG as it is expected to complete the monetization of its multi-billion dollar life insurance stake and realize the benefits of its ongoing cost efficiency initiatives.
According to BMO Capital, by the year 2026, AIG is anticipated to have fully utilized its excess capital and achieved a more competitive expense structure compared to its peers. The firm's commentary points to the potential for a significant increase in earnings per share (EPS) for AIG, projecting an uplift of over 40% from 2023 to 2026.
The analyst's note acknowledges the uncertainty in determining the appropriate discount rate to apply to these future earnings, which is a key factor in their valuation model.
BMO Capital's updated price target reflects confidence in AIG's strategic initiatives and its ability to enhance shareholder value over the next few years. The analyst's projections are based on detailed financial analysis, including an evaluation of AIG's cost efficiency program and the expected impact on the company's EPS growth trajectory.
InvestingPro Insights
BMO Capital's optimistic outlook on American International Group is further substantiated by real-time data and insights from InvestingPro. AIG's management has demonstrated a commitment to enhancing shareholder value, as evidenced by their aggressive share buyback strategy and a high shareholder yield. These moves align with BMO Capital's confidence in AIG's strategic initiatives aimed at improving its financial standing and boosting earnings per share in the coming years.
The company's P/E ratio is currently 11.9, with a slight adjustment to 11.33 over the last twelve months as of Q1 2024, which supports BMO Capital's assertion of AIG's relatively low valuation. Moreover, AIG has maintained its dividend payments for 12 consecutive years, with a notable dividend growth of 25.0% in the same period, and offers a dividend yield of 2.0%, which could attract income-focused investors.
InvestingPro data also reveals that AIG has experienced a large price uptick over the last six months, with a 6-month price total return of 26.98%, and is trading near its 52-week high, at 99.12% of the peak. This momentum may reflect the market's recognition of the company's profitability over the last twelve months and its potential for future growth, as analysts predict profitability for this year.
For those looking to delve deeper into AIG's financials and future prospects, there are additional InvestingPro Tips available, offering a comprehensive analysis of the company's position and performance. To enhance your investing strategy with these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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