Is AIG Stock Attractively Priced After Recent Digital Transformation Initiatives?

• Wondering if American International Group (AIG) stock is actually a good deal right now? If you are curious whether there is hidden value here or just hype, you are in the right place.
• AIG's stock has delivered a solid 8.2% gain year-to-date and is up 6.5% over the past 12 months, with a striking 167.6% return over the last five years. The price dipped just slightly by 0.1% over the past week.
• Recent news has spotlighted AIG's continued strategic moves in the insurance sector, including significant progress in digital transformation and updates to its risk management initiatives. Headlines around industry partnerships and expansion into new insurance markets have drawn extra attention to the stock, setting the context for recent price moves.
• AIG currently scores a 3 out of 6 on our valuation checks, highlighting areas where the stock shows value and where it does not. We will dig into the different valuation methods shortly. Stick around for a smarter, more holistic way to think about value at the end of this analysis.

American International Group delivered 6.5% returns over the last year. See how this stacks up to the rest of the Insurance industry.

Approach 1: American International Group Excess Returns Analysis

The Excess Returns valuation model estimates a company's true worth by evaluating how much return it generates over and above what investors expect; this is known as the cost of equity. In simple terms, it focuses on AIG’s ability to put shareholders' money to productive use and earn attractive profits compared to its book value.

For American International Group, the numbers are telling. The book value stands at $74.14 per share, while the stable earnings per share (EPS), based on future return on equity estimates from seven analysts, is $7.72 per share. The cost of equity is calculated at $5.58 per share, which means the company is producing an excess return of $2.14 per share, demonstrating that it is generating value above what investors require. AIG’s stable book value is projected to reach $82.30 per share in the future, supported by a healthy average return on equity of 9.38%.

Applying this methodology, the estimated intrinsic value for AIG shares is $140.33. Given the current share price, this Excess Returns model points to AIG being 43.7% undervalued, offering a substantial margin of safety for investors looking for value in the insurance sector.

Result: UNDERVALUED

Our Excess Returns analysis suggests American International Group is undervalued by 43.7%. Track this in your watchlist or portfolio, or discover 832 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for American International Group.

Approach 2: American International Group Price vs Earnings

The Price-to-Earnings (PE) ratio is a favored metric for valuing profitable companies like American International Group because it directly links a company’s share price to its earnings power. Investors often look to the PE ratio as an indicator of how the market values a company's current profits, making it especially relevant for established businesses with consistent positive earnings.

A company’s “normal” or “fair” PE ratio depends on several key factors, including growth expectations and risk. Companies with robust earnings growth potential and lower risk profiles typically command higher PE ratios, as investors are willing to pay more for those future earnings streams.

At present, American International Group trades on a PE ratio of 13.38x. For context, this sits just above the insurance industry average of 13.34x and above the peer group average of 10.78x. However, Simply Wall St’s proprietary “Fair Ratio” for AIG is 14.10x. The Fair Ratio is not just another benchmark; it estimates the multiple that would be reasonable for AIG given its individual growth prospects, profitability, market capitalization and risk profile. This makes it more insightful than merely comparing with averages, as it tailors the expected multiple to AIG’s unique business fundamentals.

Comparing the Fair Ratio of 14.10x to AIG’s actual PE ratio of 13.38x, the gap is less than 0.10, suggesting the stock is valued about right relative to its specific fundamentals at this point in time.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your American International Group Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative connects your personal view of a company's future, the story you believe in, with specific forecasts for revenue, margins, and earnings, producing your own Fair Value estimate based on those assumptions. Through Simply Wall St’s Community page, Narratives are an easy, accessible tool used by millions, allowing investors to anchor their investment decisions in actual numbers rather than just stories or broad averages.

Narratives help you decide when to buy or sell by comparing your Fair Value to the company’s current stock price, and they automatically update as new company news, earnings, or major events surface, keeping your perspective current. For example, some investors think AIG’s digital transformation and global expansion justify a fair value as high as $96, while others, more cautious about climate and legal risks, estimate a fair value closer to $79. Narratives put the power in your hands, letting you check your assumptions, track real market developments, and act with clarity and confidence.

Do you think there's more to the story for American International Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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