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We expect property and casualty insurer American Financial Group Inc. (AFG - Analyst Report) to beat expectations when it reports first-quarter 2014 results today after the market close.

Why a Likely Positive Surprise?

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.04%. This is a meaningful and leading indicator of a positive earnings surprise.

Zacks Rank: American Financial carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement. 

The right combination of two key ingredients – Zacks Rank #3 and +2.04% ESP – makes us confident of an earnings beat when American Financial reports today.

What is Driving the Better-than-Expected Earnings?

American Financial is expected to produce favorable earnings banking on strong results expected from its Annuity as well as Specialty Property and Casualty insurance operations.

Earnings in the company’s Specialty Property and Casualty insurance segment is expected to be driven by price increases (which is expected to remain above loss cost) as well as higher renewal rates. Within the Property and Casualty segment, higher contribution is expected from Property and Transportation Group, crop insurance, property and inland marine operations and workers compensation insurance.

Apart from top-line growth, we also see bottom-line growth supported by balance sheet strength, low leverage and disciplined capital management for regular share buyback and dividend payment.

Other Stocks to Consider

American Financial is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 players:

Cherry Hill Mortgage Investment Corporation (CHMI - Snapshot Report) with earnings ESP of 7.8% and Zacks Rank #2 (Buy)

Diamondrock Hospitality Co. (DRH - Snapshot Report) with earnings ESP of 14.3% and Zacks Rank #3.

Stifel Financial Corp. (SF - Snapshot Report) with earnings ESP of 1.43% and Zacks Rank #3.

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