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Here's Why You Should Invest in American Financial (AFG)
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American Financial Group’s (AFG - Free Report) improving pricing, high renewal ratio, favorable combined ratio, and sturdy financial position along with favorable growth estimates make it a good investment choice.
It has a solid earnings surprise history. Its bottom line beat estimates in the last four quarters, the average being 52.82%.
Zacks Rank & Price Performance
American Financial currently sports a Zacks Rank #1 (Strong Buy). Year to date, the stock has rallied 51.1%, outperforming the industry’s increase of 16%, the Finance sector’s rise of 19.2%, and the Zacks S&P 500 composite’s rise of 19.9%.
Image Source: Zacks Investment Research
Growth Projections
The Zacks Consensus Estimate for 2021 earnings is pegged at $9.18, indicating an 8.8% increase from the year-ago reported figure. The consensus estimate for 2022 earnings is pegged at $9.68, indicating an increase of 5.6% from the year-ago reported figure.
Upbeat Guidance
American Financial expects core net operating earnings between $8.40 and $9.20, up from $7.00 to $8.00 per share guided earlier.
Net written premiums in the Specialty Property and Casualty Insurance are expected to be up 10% to 13%, up from the prior guidance of 7% to 10%. Of this, net written premiums at Property & Transportation are now estimated to grow 15-19%. Net written premiums at Specialty Casualty are expected to grow 5-9% while at Specialty Financial it is expected to grow 10-14%.
The company expects overall Property and Casualty renewal rates in 2021 to be up 9% to 11% excluding workers' comp (up from 8% to 10% guided earlier).
For 2021, the company expects the combined ratio for the Specialty Property & Casualty Group in the range of 88 to 90 (improved from 89-91). For Property and Transportation Group, it is estimated between 87 and 90 (improved from 87 and 91). For Specialty Financial Group, the combined ratio is expected to be in the range of 84 to 87 ( an improvement from 88 to 90 guided earlier).
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 14.1%, comparing favorably with the industry’s 5.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.
Estimate Revision
The Zacks Consensus Estimate for 2021 has moved 22.4% north while the same for 2022 has moved up 20.2% in the past 60 days, reflecting analyst optimism.
Style Score
The company has a favorable Value Score of B. This style score helps to identify undervalued stocks that have a long history of showing superior returns. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are the best investment options.
Business Tailwinds
Boasting a niche position in the P&C market, American Financial has intensified its focus on the core business and exited the underperforming Annuity business. The company has been witnessing consistent price increase in its P&C business.
Along with price increase, projects loss cost trends are expected to remain stable and appear relatively benign across all the P&C lines.
Its Property and Transportation Group should benefit from new business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retention in renewal business.
It has traditionally maintained moderate adjusted financial leverage around 20%, with a good cash flow and interest coverage ratio. It expects to continue to have significant excess capital and liquidity throughout 2021 and beyond and intends to hold back about $200–$300 million of the excess capital to maintain flexibility.
Solid Dividend History
The company has been hiking dividends for the last 14 years. Its yield of 1.6% is better than the industry average of 0.4%.
Notably, the company has approved three third special dividends so far this year. The company has been paying out special dividends since 2012.
Image: Bigstock
Here's Why You Should Invest in American Financial (AFG)
American Financial Group’s (AFG - Free Report) improving pricing, high renewal ratio, favorable combined ratio, and sturdy financial position along with favorable growth estimates make it a good investment choice.
It has a solid earnings surprise history. Its bottom line beat estimates in the last four quarters, the average being 52.82%.
Zacks Rank & Price Performance
American Financial currently sports a Zacks Rank #1 (Strong Buy). Year to date, the stock has rallied 51.1%, outperforming the industry’s increase of 16%, the Finance sector’s rise of 19.2%, and the Zacks S&P 500 composite’s rise of 19.9%.
Image Source: Zacks Investment Research
Growth Projections
The Zacks Consensus Estimate for 2021 earnings is pegged at $9.18, indicating an 8.8% increase from the year-ago reported figure. The consensus estimate for 2022 earnings is pegged at $9.68, indicating an increase of 5.6% from the year-ago reported figure.
Upbeat Guidance
American Financial expects core net operating earnings between $8.40 and $9.20, up from $7.00 to $8.00 per share guided earlier.
Net written premiums in the Specialty Property and Casualty Insurance are expected to be up 10% to 13%, up from the prior guidance of 7% to 10%. Of this, net written premiums at Property & Transportation are now estimated to grow 15-19%. Net written premiums at Specialty Casualty are expected to grow 5-9% while at Specialty Financial it is expected to grow 10-14%.
The company expects overall Property and Casualty renewal rates in 2021 to be up 9% to 11% excluding workers' comp (up from 8% to 10% guided earlier).
For 2021, the company expects the combined ratio for the Specialty Property & Casualty Group in the range of 88 to 90 (improved from 89-91). For Property and Transportation Group, it is estimated between 87 and 90 (improved from 87 and 91). For Specialty Financial Group, the combined ratio is expected to be in the range of 84 to 87 ( an improvement from 88 to 90 guided earlier).
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 14.1%, comparing favorably with the industry’s 5.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.
Estimate Revision
The Zacks Consensus Estimate for 2021 has moved 22.4% north while the same for 2022 has moved up 20.2% in the past 60 days, reflecting analyst optimism.
Style Score
The company has a favorable Value Score of B. This style score helps to identify undervalued stocks that have a long history of showing superior returns. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are the best investment options.
Business Tailwinds
Boasting a niche position in the P&C market, American Financial has intensified its focus on the core business and exited the underperforming Annuity business. The company has been witnessing consistent price increase in its P&C business.
Along with price increase, projects loss cost trends are expected to remain stable and appear relatively benign across all the P&C lines.
Its Property and Transportation Group should benefit from new business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retention in renewal business.
It has traditionally maintained moderate adjusted financial leverage around 20%, with a good cash flow and interest coverage ratio. It expects to continue to have significant excess capital and liquidity throughout 2021 and beyond and intends to hold back about $200–$300 million of the excess capital to maintain flexibility.
Solid Dividend History
The company has been hiking dividends for the last 14 years. Its yield of 1.6% is better than the industry average of 0.4%.
Notably, the company has approved three third special dividends so far this year. The company has been paying out special dividends since 2012.
Other Stocks to Consider
Some other top-ranked stocks in the same space include Berkshire Hathaway Inc. (BRK.B - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) , and Everest Re Group , all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Berkshire Hathaway delivered an earnings surprise of 16.67% in the last reported quarter.
Cincinnati Financial delivered an earnings surprise of 80.81% in the last reported quarter.
Everest Re Group delivered an earnings surprise of 62.56% in the last reported quarter.