Finance

American International Group, Inc. (AIG) vs. Enbridge Inc. (ENB): Breaking Down the Property & Casualty Insurance Industry’s Two Hottest Stocks

American International Group, Inc. (NYSE:AIG) shares are down more than -8.95% this year and recently decreased -1.74% or -$0.96 to settle at $54.25. Enbridge Inc. (NYSE:ENB), on the other hand, is down -20.07% year to date as of 06/21/2018. It currently trades at $31.26 and has returned -4.11% during the past week.

American International Group, Inc. (NYSE:AIG) and Enbridge Inc. (NYSE:ENB) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AIG to grow earnings at a 36.47% annual rate over the next 5 years. Comparatively, ENB is expected to grow at a 5.03% annual rate. All else equal, AIG’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 25.82% for Enbridge Inc. (ENB). AIG’s ROI is 1.90% while ENB has a ROI of 1.90%. The interpretation is that AIG’s business generates a higher return on investment than ENB’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. AIG’s free cash flow (“FCF”) per share for the trailing twelve months was -1.33. Comparatively, ENB’s free cash flow per share was +0.42. On a percent-of-sales basis, AIG’s free cash flow was -2.41% while ENB converted 2.09% of its revenues into cash flow. This means that, for a given level of sales, ENB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

AIG’s debt-to-equity ratio is 0.54 versus a D/E of 1.24 for ENB. ENB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AIG trades at a forward P/E of 9.66, a P/B of 0.78, and a P/S of 1.01, compared to a forward P/E of 15.72, a P/B of 1.27, and a P/S of 1.49 for ENB. AIG is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AIG is currently priced at a -13.61% to its one-year price target of 62.80. Comparatively, ENB is -30.58% relative to its price target of 45.03. This suggests that ENB is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. AIG has a beta of 1.23 and ENB’s beta is 0.67. ENB’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. AIG has a short ratio of 2.90 compared to a short interest of 7.26 for ENB. This implies that the market is currently less bearish on the outlook for AIG.

Summary




American International Group, Inc. (NYSE:AIG) beats Enbridge Inc. (NYSE:ENB) on a total of 8 of the 14 factors compared between the two stocks. AIG is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, AIG is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, AIG has better sentiment signals based on short interest.

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