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American Financial (AFG) Down 7.9% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for American Financial Group, Inc. (AFG - Free Report) . Shares have lost about 7.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is AFG due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q4 Earnings Beat, 2018 View Issued
American Financial Group, Inc.’s fourth-quarter 2017 net operating earnings per share of $2.20 beat the Zacks Consensus Estimate of $1.65 cents by 33.33%. The bottom line improved about 11.1% year over year.
The quarter benefited from increased underwriting profit in Property and Casualty Insurance Segment, partially offset by the impact of fair value accounting in our Annuity Segment.
Notably, results reflect an all-time high mark for the company.
Including 92 cents per share in write-down of net deferred tax asset due to the impact of a lower U.S. corporate tax rate, loss on early retirement of debt of 29 cents, 81 cents in non-core income from the reinsurance to close transaction involving Neon’s 2015 and prior years of account and tax benefits from restructuring Neon, and net realized gains of 4 cents, net income came in at $1.84 per share, having plunged 58% year over year.
Behind the Headlines
Total operating revenues of $1.7 billion rose 7.1% year over year. The top-line growth can be attributed to higher net investment income and P&C insurance net earned premiums. Revenues outpaced the Zacks Consensus Estimate of $1.3 billion.
Net investment income of $465 million grew 8.4% year over year.
American Financial’s total cost and expenses came in at $1.5 billion, up 8.5% year over year due to higher P&C insurance losses & expenses, annuity, life, accident & health benefits plus expenses, interest charges on borrowed money, expenses of managed investment entities and other expenses.
Full-Year Highlights
Operating earnings of $6.55 per share for 2017 beat the Zacks Consensus Estimate of $6.05. However, the bottom line rose 8.6% over 2016.
Revenues of $6.6 billion also surpassed the consensus mark of $4.91 billion as well as improved 5.8% year over year.
Segment Results
Specialty Property and Casualty Insurance generated $1.6 billion in net premiums written, up 7.2% year over year. Increase in net premiums written in the Property & Transportation (up 8%), Specialty Casualty (9%) and Specialty Financial (1%) on a year-over-year basis resulted in the upside.
Underwriting profit of the segment surged 42% to $156 million, driven by higher underwriting profitability in Specialty Casualty and Property and Transportation Groups.
The segment’s combined ratio improved 310 basis points (bps) year over year to 8.3% owing to improvement of 130 bps and 740 bps in combined ratios of Property & Transportation and Specialty Casualty divisions, respectively. However, deterioration of 20 bps in the combined ratio of Specialty Financial division was a partial offset.
The Annuity segment’s statutory premiums of $909 million declined 17.4% year over year, attributable to pricing discipline in a still soft interest rate environment.
Pretax income came in at $97 million, down 27% year over year.
Financial Update
As of Dec 31, 2017, American Financial had cash and investments of $46 billion, up 11.1% from the level of $41.4 billion at 2016-end.
Long-term debt of $1.3 billion at 2017-end inched up 0.1% from 2016-end level. As of Sep 30, 2017, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $53.51, up 1.9% from the level at 2016-end.
Core return on equity of 12.7% in 2017 improved from 12.2% in 2016.
Dividend Update
The company paid cash dividend of $2.35 per share in the fourth quarter including a special dividend of $2.
2018 Guidance Unveiled
American Financial projects core net operating earnings per share in the range of $7.90-$8.40.
The insurer projects net written premium to grow between 3% and 7% in Specialty Financial Group and the combined ratio is expected in the band of 92-94%.
The company estimates Annuity sale in 2018 to rise 2-6% over 2017. This in turn is likely to result in year-over-year average asset and reserve growth of 8-10%. The insurer projects pretax annuity earnings between $385 and $425 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 5.4% due to these changes.
American Financial Group, Inc. Price and Consensus
At this time, AFG has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stocks has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AFG has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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American Financial (AFG) Down 7.9% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for American Financial Group, Inc. (AFG - Free Report) . Shares have lost about 7.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is AFG due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q4 Earnings Beat, 2018 View Issued
American Financial Group, Inc.’s fourth-quarter 2017 net operating earnings per share of $2.20 beat the Zacks Consensus Estimate of $1.65 cents by 33.33%. The bottom line improved about 11.1% year over year.
The quarter benefited from increased underwriting profit in Property and Casualty Insurance Segment, partially offset by the impact of fair value accounting in our Annuity Segment.
Notably, results reflect an all-time high mark for the company.
Including 92 cents per share in write-down of net deferred tax asset due to the impact of a lower U.S. corporate tax rate, loss on early retirement of debt of 29 cents, 81 cents in non-core income from the reinsurance to close transaction involving Neon’s 2015 and prior years of account and tax benefits from restructuring Neon, and net realized gains of 4 cents, net income came in at $1.84 per share, having plunged 58% year over year.
Behind the Headlines
Total operating revenues of $1.7 billion rose 7.1% year over year. The top-line growth can be attributed to higher net investment income and P&C insurance net earned premiums. Revenues outpaced the Zacks Consensus Estimate of $1.3 billion.
Net investment income of $465 million grew 8.4% year over year.
American Financial’s total cost and expenses came in at $1.5 billion, up 8.5% year over year due to higher P&C insurance losses & expenses, annuity, life, accident & health benefits plus expenses, interest charges on borrowed money, expenses of managed investment entities and other expenses.
Full-Year Highlights
Operating earnings of $6.55 per share for 2017 beat the Zacks Consensus Estimate of $6.05. However, the bottom line rose 8.6% over 2016.
Revenues of $6.6 billion also surpassed the consensus mark of $4.91 billion as well as improved 5.8% year over year.
Segment Results
Specialty Property and Casualty Insurance generated $1.6 billion in net premiums written, up 7.2% year over year. Increase in net premiums written in the Property & Transportation (up 8%), Specialty Casualty (9%) and Specialty Financial (1%) on a year-over-year basis resulted in the upside.
Underwriting profit of the segment surged 42% to $156 million, driven by higher underwriting profitability in Specialty Casualty and Property and Transportation Groups.
The segment’s combined ratio improved 310 basis points (bps) year over year to 8.3% owing to improvement of 130 bps and 740 bps in combined ratios of Property & Transportation and Specialty Casualty divisions, respectively. However, deterioration of 20 bps in the combined ratio of Specialty Financial division was a partial offset.
The Annuity segment’s statutory premiums of $909 million declined 17.4% year over year, attributable to pricing discipline in a still soft interest rate environment.
Pretax income came in at $97 million, down 27% year over year.
Financial Update
As of Dec 31, 2017, American Financial had cash and investments of $46 billion, up 11.1% from the level of $41.4 billion at 2016-end.
Long-term debt of $1.3 billion at 2017-end inched up 0.1% from 2016-end level. As of Sep 30, 2017, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $53.51, up 1.9% from the level at 2016-end.
Core return on equity of 12.7% in 2017 improved from 12.2% in 2016.
Dividend Update
The company paid cash dividend of $2.35 per share in the fourth quarter including a special dividend of $2.
2018 Guidance Unveiled
American Financial projects core net operating earnings per share in the range of $7.90-$8.40.
The insurer projects net written premium to grow between 3% and 7% in Specialty Financial Group and the combined ratio is expected in the band of 92-94%.
The company estimates Annuity sale in 2018 to rise 2-6% over 2017. This in turn is likely to result in year-over-year average asset and reserve growth of 8-10%. The insurer projects pretax annuity earnings between $385 and $425 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 5.4% due to these changes.
American Financial Group, Inc. Price and Consensus
American Financial Group, Inc. Price and Consensus | American Financial Group, Inc. Quote
VGM Scores
At this time, AFG has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stocks has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AFG has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.