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Reasons Why Investors Should Retain American Financial (AFG)

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American Financial Group, Inc. (AFG - Free Report) has been in investors’ good books, owing to business opportunities, mergers and acquisitions liability businesses, higher underwriting profit, favorable estimates and improved guidance.

Growth Projections

The Zacks Consensus Estimate for American Financial’s 2024 earnings is pegged at $12.02, indicating a 4.1% increase from the year-ago reported figure on 10.5% higher revenues of $7.97 billion.

Earnings Surprise History

American Financial has a decent earnings surprise history. It beat estimates in each of the last four quarters, the average being 7.69%.

Zacks Rank & Price Performance

American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 18.7% against the industry’s increase of 4.8%.

Zacks Investment Research
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Return on Equity (ROE)

American Financial’s ROE for the trailing 12 months is 23.4%, which expanded 230 basis points year over year. This reflects its efficiency in utilizing its shareholders’ funds. 

Style Score

American Financial has a favorable VGM Score of B. The VGM Score helps identify stocks with the most attractive value, the best growth and the most promising momentum.

Business Tailwinds

Banking on solid performances across Property and Transportation, Specialty Casualty and Specialty Financial lines of business, the Property and Casualty (P&C) Insurance business of AFG should continue to gain.

The Property and Casualty Insurance segment of American Financial should benefit from business opportunities, growth in the surplus lines and excess liability businesses, rate increases and higher retentions in renewal business, which boost premium growth.

The property and casualty insurer witnessed average renewal pricing across the entire P&C Group. The renewal rate environment has remained relatively consistent throughout 2022 and enabled the insurer to exceed targeted returns in nearly all of the specialty P&C businesses. American Financial expects renewal rates to increase between 3% and 5% in Specialty Property & Casualty operations overall, which is 1 point higher than the midpoint of previous guidance.

American Financial’s combined ratio has been better than the industry average for more than two decades. The underwriting profit of the insurer is likely to increase on higher profit in the workers’ compensation, excess and surplus, executive liability, mergers and acquisitions liability businesses and higher underwriting profit in the trade credit and financial institutions businesses.

In the first quarter of 2023, American Financial repurchased shares for $24 million. The robust operating profitability in the P&C segment, stellar investment performance and effective capital management support effective shareholders' returns. AFG expects its operations to generate significant excess capital in 2023 where it could deploy in excess of $500 million of excess capital for share repurchases or additional special dividends through the end of 2023.

Improved Guidance

Net written premiums for 2023 are expected to be 3% to 5% higher than the $6.2 billion reported in 2022. Excluding crop, the company expects growth in the range of 3% to 6%.

American Financial expects core net operating earnings in 2023 in the range of $11-$12 per share, which produces a core return on equity of more than 20% at the midpoint. The guidance reflects an average crop year and current expectations and assumptions regarding investment income, including an estimated return on alternative investments at 8% in 2023.

AFG expects a combined ratio for the Specialty Property & Casualty group overall between 87% and 89%, which indicates an increase of 1 point at the midpoint of the previous range of 86% to 88%.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Kinsale Capital Group, Inc. (KNSL - Free Report) , RLI Corp. (RLI - Free Report) and Axis Capital Holdings Limited (AXS - Free Report) . While Kinsale Capital and RLI Corp. sport a Zacks Rank #1 (Strong Buy), Axis Capital carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 14.77%. In the past year, KNSL has gained 58.1%.

The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings per share is pegged at $10.32 and $12.41, indicating a year-over-year increase of 32.3% and 20.2%, respectively.

RLI Corp.’s earnings surpassed estimates in each of the last trailing four quarters, the average earnings surprise being 45.50%. In the past year, RLI Corp. has gained 11.4%.

The Zacks Consensus Estimate for RLI’s 2023 earnings has moved 2.9% north in the past seven days.

Axis Capital beat estimates in three of the last trailing four quarters and missed in one, the average being 6.50%. The Zacks Consensus Estimate for 2023 has moved 2.7% north in the past 30 days.

The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $7.70 and $8.60, indicating a year-over-year increase of 32.5% and 11.7%, respectively. In the year-to-date period, AXS has lost 5.7%.

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