American International Group, Inc. (?AIG) will release its Q1 2014 earnings report on Monday, May 5, 2014, after the market closes. A follow up conference call is scheduled for Tuesday, May 6, 2014, at 8:00 am, EST. Investors and shareholders can attend the online listen-only live webcast on the company’s website at http://www.aig.com.
Unlikely Repeat of Previous Quarter
Investors received a pleasant surprise when AIG’s Q4 2013 EPS came in at a whopping 19% over analysts’ predictions. AIG posted revenue of $16.7 billion and the actual $1.15 EPS far exceeded the $0.96 Street estimate.
| Ă‚ | Q1 2014 Estimates | Q4 2013 Actual | Q3 2013 Actual |
| Ă‚ | Ă‚ | Ă‚ | Ă‚ |
| Revenue | $10.1B | $16.7B | $18B |
| EPS | $1.07 | $1.15 | $0.96 |
Current Corporate Analysis
As an insurance provider with clients in over 130 countries, AIG is still grappling with many of the same problems it had during the 2008 economic crisis. AIG remains the go-to insurer for worldwide commercial and investment banks that invest in derivatives. The banks shift the risk of derivative investing to AIG by purchasing an AIG issued insurance policy. Should a bank experience a loss, it files a reimbursement claim against the insurance company. This puts AIG on the hook to pay out millions should the derivative market start showing any signs of weakness.
Adding to AIG’s woes is the stiff competition it faces from other US and global insurance companies. To remain competitive, AIG must offer policy rates in line with other carriers even if it means cutting their policy premiums. Although this strategy attracts new clients and helps retain current ones, it does nothing to reduce AIG’s risk exposure. Domestic and foreign regulations, interest rate changes and currency volatility further hinder AIG’s growth and cut into its’ profits.
Analyst Expectations
Analysts expect AIG’s EPS to come in between $0.95 and $1.22. The EPS target of $1.06 represents a 1.85% drop from the $1.15 EPS reported in Q4 2013. However, investors cannot rule out the AIG surprise factor. The EPS for Q4 2013 had a 19% surprise factor while Q2 2013 and Q1 2013 had surprise factors of 31.76% and 52.27% respectively. Analysts expect the company’s revenue to fall between a low of $8.5 billion and a high of $15.3 billion with a target of $10.1 billion.
Trading the Earnings Report
Due to the surprise factor, trading an AIG earnings report carries more than the usual risk. Using AIG’s stock price of $52.61 as the pivot point, support and resistance can be pegged at these levels:
| Ă‚ | Support | Ă‚ | Resistance |
| S1 | $51.93 | R1 | $53.04 |
| S2 | $51.50 | R2 | $53.72 |
| S3 | $50.82 | R3 | $54.15 |
Analysts’ long-term stock target price is $56.00 a share.
Disclosure: I do not own AIG stock and have no intention of opening a position in the next 72 hours.
