Analysis of AIG stock

Here is my take on AIG (I own AIG.ws so far).

  • My overall conviction: May wait for one quarter to see whether its earnings will improve or not. Bad ROE justifies its low valuation.
  • Summary from Gorufocus manual of stock (NYSE_AIG_Gurufocus)
  • Valuation: tangible book value is $80.62, FCF proce is $84.29, 5 year median P/B value is $58.59.
  • Financial strength: weak 3/10, ROIC (-1.95%) is far less than WACC (9.80%)
  • Profitability & growth: weak, 4/10, operating margin and net margin are negative and downward trend in the latest 5 years. ROE, ROA are negative. Revenue and EBIDTA go downward, demonstrates weak moat
  • Financials: net income trends down to recent negative, FCF trands down to negative, Operating cash flow goes to negative (mostly due to hurricane)
  • Combined ration for all division went up and beyond 100%
  • Ratios: valuation ratio low P/B = 0.74 vs 5 year median 0.727
  • Dividend & Buy back: Div yield is 2.16%, lower than 82% of industry, however, div growth rate us 85.7% which is pretty high. 3 year average share buyback ratio is 12.10% which is higher than 96% of industry
  • insider trades: new CEO bought 80000 shares at open market in May 18th
  • Guru trades: Barrow, Hanley, Mewhinney & Strauss bought, John Paulson sold out
  • possible catalysts:
    turn around expert – new CEO; no more hurricane or other natural disasters?

P/B trend

Revenue, NI and YoY EPS growth (%)

Personalized Checklist

Checklist Items / Related Parameters
Within your circle of competence?
4
Macro economic environment favorable?
4
High quality business?
 3
Enough margin of safety with stocks?
4
Gurus are buying?
3
Insiders are buying?
4
Management capable and shareholder friendly?
4
Catalyst for stock price to appreciate?
3
Your level of confidence with the research?
4

 Checked: 9 / 9 – Total Score: 3.7 / 5

Invest like a guru Checklist

Checklist Items / Related Parameters
Do I understand the business?
4
What is the economic moat that protects the company so it can sell the same or a similar product five or ten years from today?
2
Is this a fast-changing industry?
3
Does the company have a diversified customer base?
4
Is this an asset-light business?
3
Is it a cyclical business?
3
Does the company still have room to grow?
3
Has the company been consistently profitable over the past ten years, through good times and bad?
1
Does the company have a stable double-digit operating margin?
1
Does the company have a higher margin than competitors?
1
Does the company have a return on investment capital of 15% percent or higher over the past decade?
1
Has the company been consistently growing its revenue and earnings at double digits?
1
Does the company have a strong balance sheet?
3
Do company executives own decent shares of stock of the company?
3
How are the executives paid compared with other similarly sized companies?
3
Are insiders buying?
4
Is the stock valuation reasonable as measured by intrinsic value, or P/E ratio?
4
How is the current valuation relative to historical range?
4
How did the company’s stock price fare during the previous recessions?
1
How much confidence do I have in my research?
4

Checked: 0 / 20 – Total Score: 2.7 / 5

About Timeless Investor

My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.
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