American International Group Inc (AIG) is a Long Term Buy

AIG Should be Worth At Least $70 per share

At the current trading price of $37 per share, AIG is worth around $57.7 billion on the market. The market is valuing AIG at only 0.56x book value. Bruce Berkowitz once commented that AIG was “picking up pennies in front of a steamroller.” According to him, a business like AIG should be trading at a multiple of the book value. Thus, at lease AIG might reach its book value of around $66.38 per share. He said, “Maybe that happens in the $70s or the $80s, I don’t know. But it gets about there. We‘ll see. And companies such as AIG can trade at a multiple of book value. But I don‘t want to go there yet. Just getting to our estimate of book value will be a very nice return for shareholders.”

Peer Comparison

Compared to its peers, including Allianz SE (ADR) (PINK:AZSEY) and AXA (ADR) (PINK:AXAHY), AIG seems to have the cheapest EV multiple. While AIG is valued at only 0.56x price-book ratio, the P/B of Allianz and AXA was 0.93x and 0.67x, respectively. Allianz, with a trading price of $13.50 per share, is worth nearly $61 billion on the market. AXA is the smallest among the three. With nearly $40 billion in the total market cap, its share price stays at around $17 per share. Among the three, AXA is paying the highest dividend yield at 4.3%. Allianz is paying 3.2% dividend yield, while AIG is not paying any dividend at the moment. Furthermore, AXA seems to have the most conservative balance sheet, with a 0.2x debt/equity ratio, while the debt/equity ratio of Allianz and AIG are 0.6x and 0.5x, respectively.

Foolish Bottom Line

With the divestiture of the non-core units, AIG will come back with much stronger revenue and profits from its core insurance business. As AIG is valued the cheapest at nearly 60% discount to the book value, AIG is definitely a long-term buy at its current price.

The article This Leading Global Insurer is a Long Term Buy originally appeared on Fool.com and is written by Anh HOANG.

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