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Here's Why You Should Add American Financial to Your Portfolio

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American Financial Group, Inc. (AFG - Free Report) remains well-poised for growth, banking on improved pricing, higher renewal ratio and better industry fundamentals. The Zacks Rank #2 (Buy) company is a niche player in the property and casualty insurance and annuity markets with focus on specialized commercial products for businesses.

American Financial Group’s return on equity — a profitability measure — is 13.3%, better than the industry average of 5.8%.This reflects the company’s efficiency in utilizing its shareholders’ funds.

The stock carries a favorable VGM Score of B. This helps identifying stocks with the most attractive value, best growth and the most promising momentum as well.

Shares of American Financial Group have inched up 1.1% year to date, underperforming the industry’s 7.3% increase.



Growth Projections: The Zacks Consensus Estimate for earnings per share is pegged at $8.53 for 2018 and at $8.63 for 2019. The consensus mark for 2018 reflects a year-over-year increase of 30.2% while the same for 2019 improved 1.3%.

The expected long-term earnings growth rate is pegged at 12.3%, much higher than the industry average of 11.8%.

Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year earnings move 1.2% north over the past 60 days.

Positive Earnings Surprise History: American Financial Group surpassed the Zacks Consensus Estimate in the last seven quarters with an average beat of 22.96%, reflecting its operational efficiencies.

Growth Drivers in Place

Management expects Specialty P&C net premiums written to grow 4-8% in 2018 from 3-7%, predicted earlier. It also projects property and casualty investment income to increase 10-13% in 2018, up from the earlier guided range of 4-6%.

Annuity premiums for 2018 are estimated to increase 2-6% year over year. Also, the company upped its Annuity earnings expectation between $395 million and $430 million, from the prior guidance of $385-$425 million.

Improving premiums coupled with better investment income should continue to drive the top line higher.

The company expects its 2018 Property and Casualty investment income to increase 10-13%, up from a 4-6% rise, expected earlier.

The company has also been witnessing a consistent price increase in property and casualty business and therefore, estimates Property and Casualty renewal pricing in 2018 to inch up 1-2%.

The company boasts a solid capital management that helps it maintain a moderate adjusted financial leverage of around 20% with good cash flow and an interest coverage ratio. This apart, it remains focused on enhancing shareholder value via regular dividend hikes and special dividends. Its dividend yield of 1.4% betters the industry average of 0.4%. While the company has about 4.1 million shares remaining under its authorization, it intends to hold back about $200-$300 million of the excess capital to maintain flexibility and deploy in growth initiatives.

Other Stocks to Consider

Investors interested in property and casualty industry can also check out a few other top-ranked stocks like Arch Capital Group Ltd. (ACGL - Free Report) , AXIS Capital Holdings Limited. (AXS - Free Report) and Berkshire Hathaway Inc. (BRK.B - Free Report) , each sharing the same bullish Zacks Rank of 2 with American Financial Group. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. Last reported quarter, it delivered a positive surprise of 13.46%.

AXIS Capital provides various specialty insurance and reinsurance products worldwide. In the earlier reported quarter, it pulled off an earnings surprise of 6.72%.

Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. It came up with a beat of 22.91% in the previously reported quarter.

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