NEW YORK -- Shares of American International Group Inc. rose in Wednesday afternoon trading after Wachovia Capital Markets analyst John Hall said Tuesday night that investors were overestimating the company's potential subprime mortgage losses.

Shares of AIG rose $2.55, or 4.7 percent, to $57.04 in afternoon trading.

In a client note, Hall said that based on the stock's 22 percent decline over the past seven weeks and a 9 percent drop in the Standard & Poor's 500 index during that stretch, investors estimate AIG's subprime mortgage losses to be about $17 billion.

"We find this order of magnitude of implied loss to stretch believability," Hall wrote in a research note.

Subprime mortgages - loans given to customers with poor credit history - have increasingly defaulted in recent months. Those defaults have forced investors, such as AIG, holding bonds and securities backed by the loans to take writedowns on their value.

Story Continues Below

Overestimating potential subprime losses has made investors lose focus on the strong parts of AIG's operations, Hall said in the note. He subsequently revised his price target for AIG to a range between $65 and $71 per share based on a sum-of-the-parts valuation, which calculates what a company would be worth if its divisions were spun off or sold to another company.

Hall said the new valuation was based on known quantities and operating businesses instead of unknown losses that may occur related to subprime mortgage holdings.

"Historically analysts shied away from applying such a valuation technique to AIG shares as the company's stock tended to trade at a premium to its many component parts," Hall wrote. "Based on our analysis, investors aren't even paying a market rate for AIG's businesses in its current bundled form."

Editor's note:
The Nine Best Energy and Precious Metals Stocks
1200% Gains in 42 Days -- Find Out How
This service made $125,427 on a $10,500 investment in 42 days!
These 3 Stocks Will Be The Biggest Winners When 77 Million Baby Boomers Retire