The shares of American International Group (NYSE: AIG) climbed back above the 50-day moving average of $53.60 to close at $53.70 on Monday. The market is buzzing about the possibility of AIG going up sharply in the next few days. It can be remembered that the firm received a bailout fund of $182 billion to prevent collapse during the financial crisis in 2008.
Earlier in January, the insurer agreed to sell the Advisor Group to private equity firm Lightyear Capital and PSP Investments (Canada’s pension investment managers). The terms of the deal were not disclosed. However, the investors were happy considering the fact that the company would be able to concentrate better on their core business.
The company has also announced its intention to spin off United Guaranty in the months ahead. Furthermore, AIG also confirmed that it would sell the operations in four Central American countries during the fourth quarter of fiscal 2016.
As far as restructuring activity is concerned, the AIG plans to spend $500 million to achieve better operational efficiency and business rationalization. The restructuring activity, mainly accomplished through employee severance, is expected to generate annual savings between $400 million and $500 million. The company is also expected to save another $100 million through the modernization of its software platforms.
To increase the level of capital, the company monetized $2.1 billion of assets, which includes 184 million H shares of PICC Property & Casualty Company Limited. Compared to its peers, AIG’s registered a better book value per share growth of approximately 13% in the last year. The forward price to book value ratio of AIG is 0.7. This is considerably lower than other similar institutions, which are trading at a ratio of 1.1. The company’s debt instruments (10-year senior unsecured notes) worth $1.5 billion were assigned a ‘Baa1’ rating by Moody’s. Considering all these facts, it looks as if AIG has made a turnaround. Unfortunately, there is a long way to go for the company as the details discussed below indicate.
The company reported fiscal 2015 fourth-quarter revenue of $13.83 billion, down from $15.53 billion in the prior year similar period. The company also recorded a net loss of $1.84 billion or $1.50 per share, compared to a net profit of $655 million or $0.46 per share in the similar period last year. The firm experienced a decline in returns from its alternative investments. The operating margin has decreased from 14.3% in fiscal 2012 to 5.6% in fiscal 2015. While there is no denial that AIG is doing all it can to perform better in the next few quarters, it is quite early to claim a reversal in fortunes.
Technically, the stock faces major resistance at 56 levels. Minor support exists at 52. The stock has also formed a double top pattern in the chart.
Thus, it is advisable for a binary options trader to purchase a one-touch put option contract. A target price of around $52 with expiry in the last week of April would enable the contract to end in-the-money.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
