AIG (AIG) is on its way to eclipsing Bank of America (BAC) as the turnaround story of 2012 as it prepares to report earnings after Thursday's close.
Analysts surveyed by Thomson Reuters are looking for AIG to earn $1.12 per share compared to $1.30 a year ago.
Investor expectations have certainly been rising, adding fuel to the AIG turnaround narrative. AIG shares gained more than 10% in April following some bullish analyst reports, while Bank of America shares lost more than 15% on the month. Year to date through Tuesday, Bank of America has performed slightly better, up 49.46% to 48.02% for AIG.
While Bank of America struggled during April as analysts including CLSA's Mike Mayo lost patience with another quarter of overly-complex earnings, AIG management impressed analysts during face-to-face meetings.
AIG's plan to continue asset sales and buy back shares from the Treasury earned plaudits from the likes of Deutsche Bank analyst Joshua Shanker.
"We believe that AIG is likely to buy back far more of its own shares than the market price would indicate and we believe those share buybacks happen at a pace that is far faster than currently anticipated," Shanker wrote March 25. He raised his target price to $40 from $35 and argued the insurer could buy back $15 billion to $20 billion in shares "or even more" over the next 12 months. The bulk of those buybacks are expected to come from the Treasury, which still owns a roughly 72% stake in AIG.
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Wells Fargo analyst John Hall followed up with a similarly bullish report, some two weeks later, bringing his target all the way up to $45.
To cap it off, the New York Fed announced at the end of last month it had completed the sale of commercial real estate securities it took over from AIG during the crisis. Credit Suisse estimates the sale of the securities, part of a vehicle known as Maiden Lane III, will lead to a positive mark of $300 million when AIG comes out with its numbers Thursday. Management will host a conference call Friday morning at 8 a.m.
AIG President and CEO Bob Benmosche told Jim Cramer on CNBC that AIG will eventually return a profit to taxpayers of $5 billion to $10 billion.
"Everyone thinks the government being a shareholder is the problem. It's not. They let us run the company," Benmosche told Cramer.
Fairholme Funds chief Bruce Berkowitz appears to be convinced. A recent filing of his fiscal first quarter holdings through Feb. 29 shows Morningstar's fund manager of the decade hung onto his entire AIG stake, more than 84 million shares, even as they rose in value by 26% in January and February.
Of course, not all AIG watchers are fully sold on the wisdom of buying the insurer's shares.
Sandler O'Neill analyst Paul Newsome argued in an April 4 report that while AIG "appears attractively priced relative to other property-casualty insurers" since it trades at just 56% of book value, that price "should be taken in light of the company's historically volatile nature and thus we find a materially discounted multiple as warranted given the company's track record."