Tuesday, September 8, 2009

AIG (NYSE:AIG): Downgraded to Underperform at Credit Suisse

Credit Suisse is lowering rating on AIG (NYSE:AIG) to Underperform from Neutral:

Downgrading to Underperform: We are downgrading the shares of AIG to Underperform from Neutral, lowering our target price to $15 from $30, lowering our 2009E to -$13.98 ($2.80 for 2H09) and initiating a 2010E at $5.70.
Our Underperform rating reflects: 1) Near term monetization of value of businesses suggests little to no value for common equity, 2) book value analysis suggests mid-teens stock, 3) distressed tender of hybrids – a book value and recap opportunity, 4) normalized capital structure yields annual EPS of $1.50 to $2.50, 5) upside-down capital structure with large debt load vs. common equity, 6) ample liquidity, but near term debt maturities may increase reliance on fed line, and 7) use of government funds.

New CEO Benmosche a positive, but low probability of meaningful common equity value: The recent rally of some of the more distressed financial stocks, the arrival of new CEO Bob Benmosche, and the potential prospect of slowing the disposition of some of AIG’s businesses have all contributed to the recent large move in the AIG stock price. But we don’t expect that a 2- to 3-year process will render upside value for common equity holders, and we note the risk of further erosion of franchise value and the intention of the government to be a bridge rather than a permanent stakeholder suggests meaningful asset sales/IPOs need to occur over the coming 12-18 months.

Our $15 target price is derived from a ~1x estimated tangible book value ex. AOCI and 7x to 8x our estimate of EPS with a normalized capital structure.

Action: Be early enough and you will sometimes be offered opportunities like this. You can get shorts above $41.5 right now.

Update: wanted to get it posted quickly so didn't waste much time earlier. Yes, the futures are indicating strong start for the day but AIG will still see some early sellers on this. I'm looking for the stock to fall below $40 before 8 am.

1 comment:

  1. I would cover 2/3 of the position here just in case it bounces.