American Financial Group, Inc. ( AFG Quick Quote AFG - Free Report) has been in investors' good books on the back of growth in the surplus lines and excess liability businesses, new business opportunities and solid capital position. The company beat earnings estimates in three of the last four quarters, with the average surprise being 5.85%. American Financial has an impressive Value Score of A. Back-tested results show that stocks with a Value Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space. Moreover, the company’s 11.5% return on equity (ROE) is better than the industry average of 5.6%, reflecting its efficiency in utilizing shareholders’ funds. This Zacks Rank #2 insurer’s premiums should benefit from new business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retentions in renewal business at its Property and Casualty Insurance segment. These factors have aided the company in maintaining a sustainable revenue growth trend over the past few years. The Zacks Consensus Estimate for the company’s 2021 revenues is pegged at $5.51 billion, indicating an increase of 5.3% from the year-ago reported figures. Revenues saw a four-year (2015-2019) CAGR of 7.6%. The P&C insurer continues to expect 2020 combined ratio between 92% and 94% for the Specialty Property and Casualty Group. For Property and Transportation Group, it is expected in the range of 90% to 93%, and between 90% and 93% for Specialty Casualty. For Specialty Financial, combined ratio is projected in the range of 91% to 95%. Based on operational excellence, the insurer boasts a solid capital position. Its excess capital stood at approximately $1 billion at third-quarter end, which includes cash of approximately $600 million. It can also borrow up to $500 million under its revolving credit facility, which expires in June 2021. American Financial’s strong cash flows have led to disciplined capital management strategies for returning shareholder value via dividend hikes. In August 2020, the company raised dividend by 11%, marking an excellent record of 15 straight annual dividend hikes. The company’s current dividend yield of 2.3% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors. However, shares of this property and casualty (P&C) insurer have lost 16.9% in a year compared with the industry’s decline of 1.6%.
Nevertheless, the Zacks Consensus Estimate for 2021 earnings per share is pegged at $8.50, indicating a rise of 18% from the year-earlier reported numbers.
Other Stocks to Consider
Some other top-ranked property and casualty insurers include
Alleghany ( Y Quick Quote Y - Free Report) , Fidelity National Financial ( FNF Quick Quote FNF - Free Report) and Arch Capital Group ( ACGL Quick Quote ACGL - Free Report) . While Alleghany, Fidelity National sport a Zacks Rank #1 (Strong Buy), Arch Capital carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. Alleghany’s bottom-line surpassed estimates in two of the last four quarters (missed the other two), the average beat being 34.08%. Fidelity National Financial surpassed earnings estimates in each of the last four quarters, with the average being 30.48%. Arch Capital surpassed estimates in three of the last four quarters, with the average surprise being 31.76%. 5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. Today, See These 5 Potential Home Runs >>