Shares in American International Group (AIG) could drop this year as the U.S. government sells stock it owns in the insurer, Barron's reported on Sunday.
The business weekly noted that AIG stock rose 40 percent in December to $58 per share. The boost came after AIG reached a deal with the government to repay some $100 billion of federal financial support, the report said.
Under the deal, AIG shareholders will be issued warrants, or long-term call options, and that prospect has contributed to the company's stock surge, Barron's said.
Although AIG looks fully priced, the stock could rise until the warrants are issued in early 2011, it said. As the stock rises, the warrants gain in value, making the stock worth more and pressuring short sellers to cover. The warrants now represent more than $10 of value per share.
Barron's said it was skeptical of AIG stock in 2010 but changed its view when the government repayment plan was announced in September.
It said Chief Executive Robert Benmosche has said AIG could earn $6 billion to $8 billion in 2011, equating to about $4 per share.
This suggests the stock ought to trade around $40, Barron's said. Book value is around $50 per share, but a discount to book may be warranted.
The stock could come under pressure in the future as the government unloads the $70 billion of stock it owns, the report said.
(Reporting by Steve James; Editing by Richard Chang)