American International Group (AIG), a diversified insurance company operating in over 100 countries, reported a larger-than-expected fourth-quarter reserve charge of $5.6 billion on the afternoon of February 14. The market was expecting a $3 billion charge.
However, there is also good news in the earnings report. The company announced an additional $3.5 billion share repurchase plan. Share repurchases and dividend payments in 2016 and 2017 are targeted to total $25 billion.
Companies do not spend cash flow on dividends and stock buybacks when they are in poor financial condition; therefore, the quarterly reserve charge was disappointing, but it does not harm the company's future outlook.
AIG has strong future earnings growth projections, a low P/E, a nice dividend and a relatively low debt ratio.
The market punished the stock, pushing the price down to about $61. I would absolutely buy additional shares at the current price. I still expect insurance companies to be one of the best-performing industries in the stock market in 2017. Strong Buy.
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