A New York-based securities firm today initiated coverage of American International Group, New York, with a buy rating based on its view that its major problems are behind it, and there is a potential for strong growth in core operations, such as Chartis.
"While we view AIG as an event-driven stock in the near term, we view it as a return-on-investment improvement/free cash flow story longer-term," say analysts at Sterne Agee in New York.
One of the reasons for Sterne Agee's optimism about AIG's prospects: the insurer's interest rate risk is "more muted" than that of its competitors. Sterne Agee analysts John M. Nadel, Dan Farrell, Alex Levine and Nitin Chhabra justify their upbeat view on the fact that core assets that have had recent problems should show strong growth.
"While non-core asset dispositions and capital management as well as continued reduction in the U.S. Government's stake will likely remain the near-term focus of investors, we believe the longer-term valuation potential will be far more correlated to the pace of fundamental improvement in ongoing operations, particularly Chartis," the analysts say.
Sterne Agee put a target price for AIG at $39. The stock is currently selling at about $30.50, which is high enough for the U.S. to sell its controlling shares at a profit for the taxpayer, according to the latest analysis by the Government Accountability Office.
