Shares of American International Group (AIG.N) tumbled as much as 6 percent on Friday before paring some of the losses after it reported mixed results and as investors took profits following a large run-up in the bailed-out insurer's shares this year.
The shares were down 3.9 percent at $32.81 on Friday in early afternoon trading.
On Thursday after the market closed AIG reported results that topped the average of Wall Street expectations as natural disaster claims dropped and the value of the company's investments increased.
Stripping out the investment gains, the results showed some softness in sales at the company's property and casualty insurance unit, Barclays analyst Jay Gelb said in a note to clients.
Prior to reporting its results, AIG's stock price was up over 46 percent year-to-date.
Gloria Vogel, an analyst at Drexel Hamilton who has a $38 target on the stock, said Friday's share price drop was likely due to profit-taking among investors.
"Although the stock has had a huge run year-to-date and may need a breather if the market slows, we nonetheless believe that AIG is still very attractively valued, that earnings should continue to improve, and that stock overhang will decrease," she said.
AIG, which received a total of $182 billion from the U.S. government during the financial crisis, has paid back 75 percent of the bailout, though the U.S. Treasury still holds a 70 percent stake in the company.
In March, the U.S. government priced a $6 billion offering of AIG stock at $29 a share.
Chief Executive Robert Benmosche acknowledged on a call with analysts on Friday that conventional wisdom has been that as long as the Treasury has a large position in AIG, $29 is probably the ceiling for the stock. But said that should change as the company continues to be profitable and pay down debt.
"We believe that earnings will actually be what determines the value of this stock," he said, adding that sales of non-core assets going forward would add to the company's balance sheet.
If AIG monetized its non-core assets for $23 billion and used the proceeds to repurchase its stock from the government, its run rate return on equity could rise to 6 percent from 4 percent, Gelb said.
Each $1 billion of share buybacks adds 5 cents to the company's annual earnings per share, he said.
Several analysts raised their price targets for AIG's stock on Friday. Keefe, Bruyette & Woods raised its price target to $29 from $26, UBS raised its price target to $34 from $29, and S&P Capital raised its price target to $39 from $36. Bank of America Merrill Lynch raised its price target to $44 from $40.
The Dow Jones Industrial Average was down 1.3 percent following a weaker-than-expected U.S. jobs report that cast doubts on the strength of the economic recovery.
(Reporting By John McCrank; Editing by Phil Berlowitz)