AIG Mulls IPO Or 19.9% Stake Sale Of Life, Retirement Unit; Wells Fargo Raises PT

American International Group announced on Friday that it is weighing an initial public offering or private sale of up to 19.99% of its life and retirement business by 2021.

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The contemplations come after AIG (AIG) last month announced a separation plan from its life and retirement business, which is intended to create a simplified corporate structure and unlock significant value for shareholders by establishing two independent companies.

“While the precise form of separation will be subject to AIG Board and regulatory approvals, rating agency considerations and market conditions, we currently contemplate either an IPO or private sale of up to 19.9% of life and retirement, followed by one or more dispositions of our remaining ownership interest over time,” said AIG President Peter S. Zaffino. “We do not intend to break up life and retirement and sell it in pieces, as a significant strength of the business is the breadth of its platform and diversified product portfolio and distribution network.”

Zaffino, who will take up the position as AIG CEO effective March 1, 2021, disclosed that the insurer is on track and will likely exceed its original guidance of $300 million exit run rate savings this year.

“We also expect to come in below the $350 million cost to achieve that we initially communicated for 2020,” Zaffino added.

Looking ahead, AIG confirmed that it still expects to generate $1 billion of run rate savings by the end of 2022 against a $1.3 billion total investment.

Wells Fargo analyst Elyse Greenspan raised the stock’s price target to $40 (21% upside potential) from $39 and reiterated a Buy rating, saying that valuation is still attractive and that investors are now focusing on the ultimate amount of time it might take to separate out all of the life & retirement (L&R) business.

“We think the timeline to a full monetization of the asset depends on its ability to use the foreign tax credits,” Greenspan wrote in a note to investors. “They think that will be able to use the vast majority of the $1.5 billion of foreign tax credits before they deconsolidate L&R (a portion of the foreign tax credits expire annually, with the last bath expiring in 2023) providing a line of sight into when the ultimate total separation of L&R could eventually take place.” (See AIG stock analysis on TipRanks)

AIG scores a Strong Buy analyst consensus with 3 Buys vs. only 1 Hold. With shares down more than 35% this year, the $38.50 average price target, indicates 16% upside potential over the coming year.