Why AIG Is Headed Higher This Morning
The first three days of this week have not been kind to American International Group . As the company continues to manage expectations for a deal gone slightly askew, investors are left wondering if the insurer will be left with more risk on its hands. Plus the entire market is waiting on pins and needles for the Federal Open Markets Committee announcement and subsequent speech from Fed Chairman Ben Bernanke this afternoon. So what is propping up AIG this morning? Just an hour into trading, the company is up 0.93%.
With so much riding on the announcement from Bernanke and the FOMC, there are sure to be big swings in the market later today. If the current QE plan stays intact, then there may be a huge sigh of relief from investors who jump further into the market; if there are cuts to the policy, shares will probably fall. For AIG investors, these swings aren't something you have to participate in -- it will happen marketwide, and if you're keeping your eye on the long term, the effects of a cut to the stimulus policy will benefit the market (and AIG) later on.
AIG has been in the process of selling off non-core businesses and refocusing its efforts on the fundamentals of insurance. As part of the sales, the insurer has been working with a consortium on Chinese financial firms to sell its aircraft leasing operations. The deal, however, has fallen on some tenuous ground, with delays pushing back closing and causing some concerns for investors. Right now, AIG has given the Chinese firms until the end of July to close the deal, but it has expressed an openness to new offers. And should the deal fall through, the world's second largest leasing business will likely go IPO.
As an AIG investor, or someone interested in the company, the current state of the sale should not be causing as much panic as the headlines are suggesting. The original deal was for far less than management had originally wanted to sell the operations for, leaving room for new offers to better the current $4.2 billion price tag. And if there are no new offers and an IPO is the final route, AIG is well qualified to handle that situation and come out on top.
While the company ultimately wants to rid itself of the operations to reduce company debt and refocus on its core businesses, maintaining the leasing segment is not a huge detractor from the AIG recovery story. Management has been cutting costs, reducing debt, expanding, and setting goals for long-term success. All of this leads many to believe that the insurer is well on its way to being the giant it was before the financial crisis. In fact, the reason AIG is up this morning is likely because of a price target upgrade from Deustche Bank -- from $52 to $56, a 24% upside from yesterday's close.
Want more analysis on AIG?
AIG's stock has been a favorite among hedge fund managers. Have they identified the next big multi-bagger, or are the risks facing the insurance giant still too great? In The Motley Fool's premium report on AIG, Financials Bureau Chief Matt Koppenheffer breaks down the key issues that you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you'll also receive a full year of key updates and expert analysis as news continues to develop.
The article Why AIG Is Headed Higher This Morning originally appeared on Fool.com.Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.