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American Financial (AFG) Up 2.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for American Financial Group (AFG - Free Report) . Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive 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 its most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q2 Earnings Beat, Revenues Miss
American Financial Group, Inc. reported second-quarter 2022 net operating earnings per share of $2.85, which surpassed the Zacks Consensus Estimate by 27.2%. The bottom line improved 19% year over year.
American Financial’s results reflect higher P&C insurance net earned premiums, net investment income and other income, offset by higher expenses.
Behind the Headlines
Total revenues of $1.6 billion increased 11.1% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums, net investment income and other income. The top line missed the Zacks Consensus Estimate by 3.9%.
Net investment income climbed 2.4% year over year to $168 million in the quarter under review, driven by strong earnings from alternative investments, with an annualized return of approximately 12.4%. The figure was lower than our estimate of $237.8 million and missed the Zacks Consensus Estimate of 174.26 million. Total cost and expenses increased 7.2% year over year to $1.3 billion due to higher P&C insurance losses & expenses and expenses of managed investment entities. The figure was lower than our estimate of $1.6 billion.
Segmental Update
The Specialty P&C Insurance segment generated $1.5 billion in net written premiums, which rose 11% year over year. The growth was reported within each of the Specialty P&C groups owing to a combination of new business opportunities, increased exposure and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers’ compensation, increased nearly 6% in the quarter.
Net written premiums in Property & Transportation Group grew 12% year over year to $632 million in the quarter. The figure was lower than our estimate of $708.3 million. Net written premiums at Specialty Casualty Group increased 9% year over year to $646 million. The figure was higher than our estimate of $616.1 million. Further, net written premiums at Specialty Financial increased 11% year over year to $177 million. The figure was higher than our estimate of $169.4 million. Net written premiums at Other divisions improved 13% year over year to $61 million. The figure was lower than our estimate of $72 million.
Specialty P&C Insurance segment’s underwriting profit increased 29% year over year to $197 million in the quarter. The increase was primarily driven by higher year-over-year underwriting profit in Specialty Casualty and Specialty Financial Groups, partially offset by lower underwriting profit in Property and Transportation Group. The combined ratio improved 210 basis points (bps) year over year to 85.8% at the segment.
Discontinued Annuity Operations
In May 2021, AFG completed the sale of its Annuity business to Mass Mutual for cash proceeds of $3.57 billion. AFG recognized an after-tax non-core gain on the sale of $656 million in the first half of 2021. The sale continues to be subject to tax-related post-closing adjustments, which are not expected to be material and are expected to be settled in 2022.
Financial Update
American Financial exited the second quarter with total cash and investments of $14.3 billion, which declined 9.4% from the 2021-end level. The figure was lower than our estimate of $17.3 billion. As of Jun 30, 2022, long-term debt totaled $1.5 billion, which decreased 21.5% from the level at 2021 end.
As of Jun 30, 2022, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $51.68, down 9.9% from the 2021-end level. Annualized return on equity (ROE) came in at 14.3% for the second quarter, contracting 5770 basis points year over year.
Prudent Capital Deployment
American Financial paid cash dividends of $8.56 per share during the second quarter, which included an $8 per share special dividend.
2022 Guidance Revised
American Financial increased core net operating earnings guidance to $10.75-$11.75 per share from the earlier guidance of $10.50 - $11.50 per share. Based on results through the first six months, American Financial continues to expect overall calendar year combined ratio in the range of 85% to 87%. American Financial expects net written premiums to be 9% to 13% higher than $5.6 billion reported in 2021, an increase from the earlier guidance of growth in the range of 8% to 12%. American Financial expects the market to remain firm throughout 2022, allowing the insurer to act on business opportunities and achieve adequate renewal rate increases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.79% due to these changes.
VGM Scores
At this time, American Financial has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Financial has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
American Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Everest Re , a stock from the same industry, has gained 8.2%. The company reported its results for the quarter ended June 2022 more than a month ago.
Everest Re reported revenues of $3.07 billion in the last reported quarter, representing a year-over-year change of +3.3%. EPS of $9.79 for the same period compares with $14.63 a year ago.
Everest Re is expected to post earnings of $4.23 per share for the current quarter, representing a year-over-year change of +415.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Everest Re. Also, the stock has a VGM Score of B.
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American Financial (AFG) Up 2.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for American Financial Group (AFG - Free Report) . Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive 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 its most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q2 Earnings Beat, Revenues Miss
American Financial Group, Inc. reported second-quarter 2022 net operating earnings per share of $2.85, which surpassed the Zacks Consensus Estimate by 27.2%. The bottom line improved 19% year over year.
American Financial’s results reflect higher P&C insurance net earned premiums, net investment income and other income, offset by higher expenses.
Behind the Headlines
Total revenues of $1.6 billion increased 11.1% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums, net investment income and other income. The top line missed the Zacks Consensus Estimate by 3.9%.
Net investment income climbed 2.4% year over year to $168 million in the quarter under review, driven by strong earnings from alternative investments, with an annualized return of approximately 12.4%. The figure was lower than our estimate of $237.8 million and missed the Zacks Consensus Estimate of 174.26 million. Total cost and expenses increased 7.2% year over year to $1.3 billion due to higher P&C insurance losses & expenses and expenses of managed investment entities. The figure was lower than our estimate of $1.6 billion.
Segmental Update
The Specialty P&C Insurance segment generated $1.5 billion in net written premiums, which rose 11% year over year. The growth was reported within each of the Specialty P&C groups owing to a combination of new business opportunities, increased exposure and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers’ compensation, increased nearly 6% in the quarter.
Net written premiums in Property & Transportation Group grew 12% year over year to $632 million in the quarter. The figure was lower than our estimate of $708.3 million. Net written premiums at Specialty Casualty Group increased 9% year over year to $646 million. The figure was higher than our estimate of $616.1 million. Further, net written premiums at Specialty Financial increased 11% year over year to $177 million. The figure was higher than our estimate of $169.4 million. Net written premiums at Other divisions improved 13% year over year to $61 million. The figure was lower than our estimate of $72 million.
Specialty P&C Insurance segment’s underwriting profit increased 29% year over year to $197 million in the quarter. The increase was primarily driven by higher year-over-year underwriting profit in Specialty Casualty and Specialty Financial Groups, partially offset by lower underwriting profit in Property and Transportation Group. The combined ratio improved 210 basis points (bps) year over year to 85.8% at the segment.
Discontinued Annuity Operations
In May 2021, AFG completed the sale of its Annuity business to Mass Mutual for cash proceeds of $3.57 billion. AFG recognized an after-tax non-core gain on the sale of $656 million in the first half of 2021. The sale continues to be subject to tax-related post-closing adjustments, which are not expected to be material and are expected to be settled in 2022.
Financial Update
American Financial exited the second quarter with total cash and investments of $14.3 billion, which declined 9.4% from the 2021-end level. The figure was lower than our estimate of $17.3 billion. As of Jun 30, 2022, long-term debt totaled $1.5 billion, which decreased 21.5% from the level at 2021 end.
As of Jun 30, 2022, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $51.68, down 9.9% from the 2021-end level.
Annualized return on equity (ROE) came in at 14.3% for the second quarter, contracting 5770 basis points year over year.
Prudent Capital Deployment
American Financial paid cash dividends of $8.56 per share during the second quarter, which included an $8 per share special dividend.
2022 Guidance Revised
American Financial increased core net operating earnings guidance to $10.75-$11.75 per share from the earlier guidance of $10.50 - $11.50 per share. Based on results through the first six months, American Financial continues to expect overall calendar year combined ratio in the range of 85% to 87%. American Financial expects net written premiums to be 9% to 13% higher than $5.6 billion reported in 2021, an increase from the earlier guidance of growth in the range of 8% to 12%. American Financial expects the market to remain firm throughout 2022, allowing the insurer to act on business opportunities and achieve adequate renewal rate increases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -5.79% due to these changes.
VGM Scores
At this time, American Financial has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Financial has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
American Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Everest Re , a stock from the same industry, has gained 8.2%. The company reported its results for the quarter ended June 2022 more than a month ago.
Everest Re reported revenues of $3.07 billion in the last reported quarter, representing a year-over-year change of +3.3%. EPS of $9.79 for the same period compares with $14.63 a year ago.
Everest Re is expected to post earnings of $4.23 per share for the current quarter, representing a year-over-year change of +415.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Everest Re. Also, the stock has a VGM Score of B.