Why In the World Is AIG Worth More Than Goldman Sachs?
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If you look at Yahoo! Finance, or Bloomberg for that matter, you would think AIG's (NYSE: AIG) market cap is roughly $40 billion. But this is just a fraction of the "real" market cap.
Once the government gets their shares, the market cap on AIG will swell to nearly $100 billion.
We get to this number by adding up:
140,029,102 shares currently outstanding
1,655,037,962 shares that are going to be given to the U.S. Treasury in exchange for preferred shares owned.
75,000,000 shares issuable on the exercise of warrants that will be given to current shareholders.
So the total shares outstanding shares in AIG will be 1,870,067,064 shares. Multiple this by the current market price of $51 and you get to a market cap of over $95 billion.
This would make AIG worth more than nearest rival Travelers (NYSE: TRV), which has a market cap of just $25.44 billion. This would also be more than the investment bank said to contribute to AIG's downfall - Goldman Sachs (NYSE: GS), which has a market cap of $85 billion.
Looking at the numbers it is hard to see how anyone is getting to the $100 billion market cap for AIG.
According to some analysts, AIG will earn $1.5-$2.5 billion in 2011. This means he company will earn $0.80 to $1.34 per share in 2011.
Rival Travelers trades at less than 11x 2011 EPS. Applying this multiple to AIG would suggest a price of $8.80-$14.74.
Even if you give AIG a massive premium of 20x EPS, this would suggest a price of $17.60-$29.48.
The current forward ('11) multiple on AIG is 38-64x.
Anyway you look at it, AIG appears overvalued. Now you will have a seller in the U.S. Treasury coming to the market with up to $86 billion in stock. This appears to be a recipe for disaster for current shareholders.
Once the government gets their shares, the market cap on AIG will swell to nearly $100 billion.
We get to this number by adding up:
So the total shares outstanding shares in AIG will be 1,870,067,064 shares. Multiple this by the current market price of $51 and you get to a market cap of over $95 billion.
This would make AIG worth more than nearest rival Travelers (NYSE: TRV), which has a market cap of just $25.44 billion. This would also be more than the investment bank said to contribute to AIG's downfall - Goldman Sachs (NYSE: GS), which has a market cap of $85 billion.
Looking at the numbers it is hard to see how anyone is getting to the $100 billion market cap for AIG.
According to some analysts, AIG will earn $1.5-$2.5 billion in 2011. This means he company will earn $0.80 to $1.34 per share in 2011.
Rival Travelers trades at less than 11x 2011 EPS. Applying this multiple to AIG would suggest a price of $8.80-$14.74.
Even if you give AIG a massive premium of 20x EPS, this would suggest a price of $17.60-$29.48.
The current forward ('11) multiple on AIG is 38-64x.
Anyway you look at it, AIG appears overvalued. Now you will have a seller in the U.S. Treasury coming to the market with up to $86 billion in stock. This appears to be a recipe for disaster for current shareholders.
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