The shares of American International Group Inc (NYSE:AIG) are trading lower after the company reported year-over-year drop in its net income. During the second quarter of 2015, the insurance company had a net income of $1.8 billion, with diluted earnings per share of $1.32, against prior year net income of $3.10 billion and EPS of $2.10. Despite a lower net income, American International Group Inc (NYSE:AIG) increased its quarterly dividend to $0.28 from $0.12 and raised its buyback program by $5 billion to $6.3 billion.
The CEO of American International Group Inc (NYSE:AIG), Peter D. Hancock, addressed the issue with lower earnings upfront and said:
“Our second quarter results demonstrate our steadfast commitment to value-based management – we’re taking action today to create long-term value for tomorrow.” While discussing the company’s commitment to offer more shareholder value, Mr. Hancock added, “Our Board’s approval of an additional $5.0 billion share repurchase authorization, and a 124 percent increase in the quarterly dividend to $0.28 per share, highlights our commitment to shareholder return and our positive outlook for long-term profitability.”
American International Group Inc (NYSE:AIG) is in the good books of several billionaire hedge fund managers including Lee Cooperman of Omega Advisors. While talking about the stock during the 2014 SALT conference, Mr. Cooperman said, “We think AIG over the next three years gets to a 10 percent ROE, and that gets you into the mid-$60s stock price.” According to Insider Monkey, 13 hedge fund billionaires in its database had positions in the stock at the end of the first quarter.
Bruce Berkowitz, the manager of Fairholme fund, is another long-term supporter of the company with 23.86 million shares valued $1.03 billion of AIG in his portfolio at the end of the first quarter. In September last year, he said “I believe [American International Group Inc (NYSE:AIG) and Bank of America Corp (NYSE:BAC)] are the cheapest relative to their intrinsic value and I believe that after studying them for decades I have an understanding of the institutions.”
The shares of American International Group Inc (NYSE:AIG) are up by 9.17% year-to-date and are currently trading at $61.79. The smart money were slightly bearish on the stock at the end of the first quarter with 101 hedge funds holding $10.65 billion worth of stock, versus 116 funds with $11.65 billion at the end of the fourth quarter of 2014. In addition to Fairholme and Omega Advisors, the insurance company attracted investments from the likes of John Paulson’s Paulson & Co, Richard Perry’s Perry Capital, and Michael Lowenstein’s Kensico Capital.
Despite lower profit margins and slightly bearish hedge fund sentiment, we will recommend investors to initiate positions at current weakness. The company is working towards increasing shareholder value and with its buyback programs, it is likely to move towards sustainable growth in the future.
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