American International Group, Inc. (AIG, Financial) is one of those companies that have witnessed one of the worst declines in economic history. The global insurance giant was bailed out by the US government from collapsing in 2008 and it has been struggling with its financial position ever since. Before the economic crisis in 2008, the market price of the shares of the company was more than $1,000. At the advent of the crisis, the decline in the market price of the company’s shares was so steep AIG would have gone bankrupt had the government not stepped in. AIG is currently facing the aftermath of the government bailouts, as the officials at AIG claim that the terms of the bailout were unfair. Since the decline, AIG has faced numerous ups and downs, and the share price of the company has been highly volatile. Recently, the company’s share price has moved downwards following the conflict with the regulatory authorities.
AIG is one of the largest insurance companies in the world. It serves customers in more than 130 countries through its numerous business segments. Although the business of the company is still active globally, its market performance has been unimpressive. Currently AIG shares are being traded within the range of $35.14 and $36, and the prospective view of the market price of AIG’s shares does not seem bright. The following chart represents the trend of the share price of the company over the past one year.
It can be observed from the chart that the overall trend of the share price in 2012 was upwards. The market price reached its 52-week high at $37.67 in October, and it can also be observed that it took a steep decline once again. These fluctuations have rendered AIG unreliable in the eyes of both the investors and the analysts. This is the reason why there is a high level of uncertainty regarding the future of AIG’s market performance.
Revised Target Price
The analysts at Goldman Sachs have brought the target price of AIG’s shares down to $43 from $44. Even though the target price has been revised, they have exhibited sufficient confidence in the prospective market performance of the shares of the company. The analysts believe that the decline in the value of AIG’s stock is due to the ongoing regulatory pressures. They have reiterated the ‘buy’ rating for AIG’s stock as they consider the decline in valuation as temporary. However, some of the risks that have the potential to impair the prospective profitability of the company are: interest rate volatility, pressures from rating agencies, and regulatory pressures. These factors can continue to place hurdles in the way of a smooth financial performance by the company, therefore they will also influence its market performance. According to the analysts at Goldman Sachs, the market price of AIG’s shares will rise once the company is past this phase of regulatory pressures. The analysts at Sanford C. Bernstein also displayed a positive attitude towards AIG as they reiterated an outperform rating.
When the stock rating from other analysts is taken into consideration, the rating from Goldman Sachs seems very generous and optimistic. Wells Fargo revised the rating of AIG’s shares from ‘outperform’ to ‘market perform’. Joining the list of analysts weighing in on AIG are: analysts at Barclays Capital who gave AIG an equal-weight rating with the target price of $33, and the analysts at Zacks who reiterated their neutral rating on AIG’s shares with a target price of $37.
Overall, there are highly diversified views regarding the prospective marketing performance of the company. Considering the business risks faced by AIG, there is a reasonable level of doubt on the prospective profitability of the company. Some analysts are of the view that things will improve for AIG after the regulatory pressures are over, but this view does not seem to be backed up on a large scale.
After the analysis of AIG’s market performance, the regulatory issues, and the views of different analysts, in my opinion, investors should "hold" their investments in the company. The rationalization behind this recommendation is that it is not clear whether the share price of the company will recover in the near future and selling the shares at this point may cause a significant loss to the investors. Therefore, it may be a wiser decision to hold investment in AIG for a while.
AIG is one of the largest insurance companies in the world. It serves customers in more than 130 countries through its numerous business segments. Although the business of the company is still active globally, its market performance has been unimpressive. Currently AIG shares are being traded within the range of $35.14 and $36, and the prospective view of the market price of AIG’s shares does not seem bright. The following chart represents the trend of the share price of the company over the past one year.
It can be observed from the chart that the overall trend of the share price in 2012 was upwards. The market price reached its 52-week high at $37.67 in October, and it can also be observed that it took a steep decline once again. These fluctuations have rendered AIG unreliable in the eyes of both the investors and the analysts. This is the reason why there is a high level of uncertainty regarding the future of AIG’s market performance.
Revised Target Price
The analysts at Goldman Sachs have brought the target price of AIG’s shares down to $43 from $44. Even though the target price has been revised, they have exhibited sufficient confidence in the prospective market performance of the shares of the company. The analysts believe that the decline in the value of AIG’s stock is due to the ongoing regulatory pressures. They have reiterated the ‘buy’ rating for AIG’s stock as they consider the decline in valuation as temporary. However, some of the risks that have the potential to impair the prospective profitability of the company are: interest rate volatility, pressures from rating agencies, and regulatory pressures. These factors can continue to place hurdles in the way of a smooth financial performance by the company, therefore they will also influence its market performance. According to the analysts at Goldman Sachs, the market price of AIG’s shares will rise once the company is past this phase of regulatory pressures. The analysts at Sanford C. Bernstein also displayed a positive attitude towards AIG as they reiterated an outperform rating.
When the stock rating from other analysts is taken into consideration, the rating from Goldman Sachs seems very generous and optimistic. Wells Fargo revised the rating of AIG’s shares from ‘outperform’ to ‘market perform’. Joining the list of analysts weighing in on AIG are: analysts at Barclays Capital who gave AIG an equal-weight rating with the target price of $33, and the analysts at Zacks who reiterated their neutral rating on AIG’s shares with a target price of $37.
Overall, there are highly diversified views regarding the prospective marketing performance of the company. Considering the business risks faced by AIG, there is a reasonable level of doubt on the prospective profitability of the company. Some analysts are of the view that things will improve for AIG after the regulatory pressures are over, but this view does not seem to be backed up on a large scale.
After the analysis of AIG’s market performance, the regulatory issues, and the views of different analysts, in my opinion, investors should "hold" their investments in the company. The rationalization behind this recommendation is that it is not clear whether the share price of the company will recover in the near future and selling the shares at this point may cause a significant loss to the investors. Therefore, it may be a wiser decision to hold investment in AIG for a while.
