NEW YORK (TheStreet) -- Goldman Sachs upgraded the stock of AIG (AIG) to buy from neutral on Wednesday with a price target of $40, citing an improvement in the pricing environment of its property and casualty business, an improving risk profile and higher capital deployment.
The upgrade follows the Treasury's announcement earlier this week of its plans to sell $5.8 billion worth of shares in the bailed-out insurance giant and reduce its stake to 61% from 70%.
The latest report from the government accountability office Tuesday said that the Treasury could make a $15 billion profit from the bailout of AIG.
Shares of AIG underperformed through 2011 as the stock suffered from the technical overhang of the givernment's outsized stake in the company. Investors were reluctant to build positions in the stock for fear of another government sale of stock that could depress the share price.However, the stock has proved more resilient in recent months as AIG has also bought back stock from the government. "We expect that future sales by the Treasury could result in some short-term downward price pressure as those sales come to market below the prevailing market price. But each sale would reduce the overhang from remaining Treasury shares and encourage investors to think about fundamental value and not the technical aspect of coming share issuances," Goldman Sachs analyst Michael Nanizzi wrote in his report. Expectations of improving performance at Chartis also led to the upgrade. "Changes are taking place at Chartis that we think will yield improved results in future periods. In addition, a better overall pricing environment provides a backdrop that is also conducive to improving returns at Chartis, and we continue to hear from the marketplace that AIG is taking a very disciplined approach to pricing," the report said. Shares were rising 0.3% in premarket trading Wednesday. -- Written by Shanthi Bharatwaj in New York.
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