A month has gone by since the last earnings report for American Financial Group (AFG Quick QuoteAFG - Free Report) . Shares were flat in that time frame, outperforming the S&P 500.

Will the recent trend continue leading up to its next earnings release, or is American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

American Financial Q4 Earnings Beat, Revenues Up Y/Y

American Financial Group, Inc. delivered fourth-quarter 2021 core net operating earnings per share of $4.12, which outpaced the Zacks Consensus Estimate by 38.3%. The bottom line doubled on a year-over-year basis.

American Financial’s quarterly performance was driven by a substantial uptick in underwriting profit across the Specialty Property and Casualty (P&C) insurance operations. Reduced costs and expenses, and solid performance of AFG’s alternative investment portfolio that resulted in increased P&C net investment income contributed to the upside.

Behind the Headlines

Total operating revenues amounted to $1.8 billion in the fourth quarter, which rose 2.6% year over year. The improvement can be attributed to growth in net earned premiums at its P&C insurance, net investment income and other income. P&C insurance net earned premiums of $1.5 billion climbed 9.6% year over year. Net investment income surged 42.2% year over year to $209 million. On a year-over-year basis, other income of $43 million more than doubled in the quarter under review. Total costs and expenses of American Financial fell 4.1% year over year to $1.3 billion due to reduced P&C insurance losses and expenses and lower other expenses.

Segment Results

Specialty P&C insurance operations generated $1.3 billion in net written premiums, which grew 4% year over year on the back of robust growth in each of its Specialty P&C groups. The turnaround of the economy, new business opportunities and a solid renewal rate environment contributed to the improvement. Pretax core operating earnings of P&C Insurance Segment attained a record level of $485 million in the fourth quarter, which soared 77% year over year. The significant growth can be attributed to improved P&C underwriting profit and P&C net investment income. The segment’s record underwriting profit of $281 million surged 57% year over year in the reported quarter on the back of better year-over-year underwriting profit across Specialty Casualty, and Property and Transportation Groups.

Consequently, Specialty Group’s aggregate combined ratio improved 550 basis points (bps) year over year to 80.7% on account of improvements of 530 bps in Property & Transportation, 600 bps in Specialty Casualty and 130 bps in Specialty Financial divisions.

Net written premiums in Specialty Casualty Group totaled $628 million, which advanced 11% year over year. The same at Specialty Financial and Other divisions rose 6% and 8%, respectively, year over year. Meanwhile, net written premiums at Property & Transportation Group fell 5% year over year.

Financial Update

American Financial exited the fourth quarter with cash and investments of $15.7 billion, which increased 16.7% from the 2020-end level. As of Dec 31, 2021, long-term debt remained almost flat year over year at nearly $2 billion.
AFG’s book value per share (excluding unrealized gains/losses on fixed maturities) came in at $57.42. The figure decreased 9.7% from the figure at 2020 end. The company had around $2.1 billion of excess capital as of Dec 31, 2021.

Dividend Update

American Financial declared cash dividends amounting to $6.56 per share in the fourth quarter. Included within the total cash dividends are a special dividend of $4.00 per share paid in November 2021 and another special dividend of $2.00 per share in December.

Full-Year Highlights

For 2021, AFG’s core net operating earnings per share of $11.59 surpassed the Zacks Consensus Estimate of $10.46 by 10.8%. The bottom line more than doubled from the 2020-end level. Operating revenues for the year were $6.6 billion, which climbed 13.6% from the figure at 2020 end. Core operating return on equity improved 940 bps year over year to 18.6%. In 2021, American Financial bought back shares worth $319 million and distributed special dividends of $26.00 per share.

2022 Outlook Unveiled

AFG forecast core net operating earnings to be $9.75-$10.75 per share, which suggests a decline from the 2021 reported figure of $11.59. Management anticipates net written premiums to witness growth in the range of 8% to 12%, which indicates an uptick from $5.6 billion reported in 2021. The company projects a combined ratio in the range of 85% to 87% for 2022.

Discontinued Annuity Operations

On May 28, 2021, American Financial completed the divestiture of its Annuity business to Mass Mutual. AFG realized an after-tax non-core gain on the sale of $656 million in the first half of 2021. Consequently, from the first quarter of 2021 and through the date of sale, the results of the company’s Annuity operations are reported as discontinued operations.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, American Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise American Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.