Shares of American International Group are up more than 25 percent year to date. Where the stock goes from here may depend on how quickly AIG starts returning capital to shareholders, analysts say.
After earnings in early May, AIG CEO Robert Benmosche told CNBC that the company's priority was to deal with its debt in order to ensure it maintains a strong credit rating. After that, it will look at a dividend and then potentially a stock buyback.
"As we continue to work on our capital plan and work with the Federal Reserve, our next priority would be to put a dividend on the stock, because we think that will increase the potential buyers," Benmosche told CNBC. "We're also looking at potential stock buybacks, as we progress through the year."
Last week, Goldman Sachs downgraded AIG to "neutral" after the stock's 38 percent run up over the past 12 months.
"We continue to believe that AIG will see property & casualty margins improve and underwriting income rise, but following recent outperformance we believe that current shares now well reflect the fundamental story," the Goldman analysts wrote.
They believe that additional upside to the stock will have to come from capital deployment. But the analysts are not confident that dividends and stock buybacks will become AIG's priority until it satisfies both ratings agencies and regulators, "the latter of which will reflect a yet undefined framework and timeframe," according to Goldman.
The broker sees risk that additional oversight for companies that are deemed Systemically Important Financial Institutions (SIFIs) will delay or reduce the ability of companies to repurchase shares.
But where Goldman is cautious, Barclays is a bit more optimistic about capital returns. On Monday, the brokerage house upgraded AIG to "outperform," based on expectations AIG will begin to focus on buybacks, which can enhance both earnings per share and book value.
"For AIG, we now expect $5 billion of share buybacks in both 2014 and 2015 driven in part by proceeds from the sale of ILFC," the Barclays analysts wrote in a note, referring to the International Lease Finance Corp. deal in December. "As a result, AIG appears closer to achieving its 10 percent return on equity (ROE) goal by 2015 (based on adjusted book value)."
Barclays puts a $52 price target on AIG shares, implying about 17 percent upside from current levels.
Goldman, however, counsels investors to look elsewhere for better risk/reward.
They say to focus on companies that can both generate margin expansion and deploy capital accretively without regulatory risk (such as Allstate) or companies that also may face regulatory uncertainty but have more muted buyback expectations (such as Prudential and MetLife) and more attractive earnings-based valuations.
Goldman Sachs and Barclays have received compensation for investment banking and noninvestment banking services from AIG in the past 12 months.