After years of doubtful turnaround efforts at U.S. insurer AIG, earnings may have finally hit bottom and present a possible buying opportunity, according to UBS.
"When Brian Duperreault joined the company about a year ago as the new CEO, we were supportive of his strategy to invest in talent and make changes to position AIG to grow," analyst Brian Meredith said in a note to clients Wednesday. "However, we recognized it would take time and that expectations needed to be reset."
"A year in, we believe expectations have now been fully reset and earnings estimates have bottomed out," he added. "As AIG begins to consistently meet or exceed earnings expectations, with less volatility and a return to growth, we see its shares re-rating closer to peers, driving meaningful upside."
The persistent underperformance has been driven largely by downward estimate revisions, loss reserve charges and an erosion in confidence in company management, the analyst wrote. But with Duperreault and a new team at the helm, AIG's Property and Casualty insurance should be able to find its footing.
In addition to upgrading his rating on shares to buy from neutral, Meredith set the company's price target at $65, implying 21 percent upside over the next 12 months. Shares of AIG rose 0.9 percent in premarket trading following the analyst's bullish note.
"The foundation is in place for long-term, sustainable improvement in the Commercial P&C business profitability," Meredith wrote. "While we expect some volatility in quarterly results to persist in the near term as the re-underwriting continues, we believe that consensus expectations have been reset, which should allow AIG to meet or exceed expectations."
"The Life & Retirement division should also benefit from a rising interest rate environment (improved spreads), an increase in index and variable annuity sales, opportunistic pension risk transfers deals, and M&A," he added.
— CNBC's Michael Bloom contributed to this report.