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Why Is American Financial (AFG) Up 5.2% Since Last Earnings Report?
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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 5.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
American Financial Q4 Earnings, Revenues Top Estimates
American Financial Group, Inc. reported fourth-quarter 2023 net operating earnings per share of $2.84, which beat the Zacks Consensus Estimate by 1.1%. The bottom line, however, decreased 5% year over year. Results reflected higher premiums and increased average renewal pricing across the Property and Casualty (P&C) group. However, these were offset by higher expenses and lower net investment income.
Behind the Headlines
Total revenues of $1.9 billion increased 1.6% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums. The top line beat the Zacks Consensus Estimate by 3.4%. P&C insurance net earned premiums increased 6.7% to $1.7 billion, in line with our estimate.
Net investment income declined 5.4% year over year to $159 million in the quarter under review. The figure was lower than our estimate of $172.1 million and missed the Zacks Consensus Estimate of $187 million.
Total cost and expenses increased 10.4% year over year to $1.7 billion due to higher P&C insurance losses and expenses, cost of managed investment entities and other expenses. Our estimate was $1.8 billion. The Specialty P&C Insurance segment generated $1.4 billion in net written premiums, which rose 8% year over year, reflecting a combination of new business opportunities, increased exposures and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers’ compensation, was up approximately 7% in the quarter.
Underwriting profit of $212 million declined 2.3%. The combined ratio was 87.7%, down 110 basis points year over year. The Zacks Consensus Estimate was pegged at 91.
Segmental Update
Net written premiums of Property & Transportation Group increased 1% year over year to $426 million in the quarter. Our estimate was $423.3 million. Underwriting profit fell 1.5% to $67 million. The combined ratio was 90.3%, deteriorating 30 basis points year over year.
Net written premiums at Specialty Casualty Group increased 7% year over year to $700 million. Our estimate was $726.2 million. Underwriting profit of $114 million declined 10.9%. Combined ratio was 84.6%, down 330 basis points year over year.
Net written premiums at Specialty Financial increased 26% year over year to $250 million. Our estimate was $239.8 million. Underwriting profit increased 36.4% to $45 million, primarily as a result of higher underwriting profit in financial institutions' business. Combined ratio was 81.3%, up 180 basis points year over year.
Net written premiums at Other divisions increased 13% year over year to $69 million. Our estimate was $74.1 million.
Full-Year Highlights
Core operating earnings were $2.84 per share, which decreased 5% year over year. P&C insurance net earned premiums increased 7.3% to $6.5 billion. Combined ratio deteriorated 410 basis points year over year.
Financial Update
American Financial exited 2023 with total cash and investments of $15.3 billion, which increased 5.2% from the 2022-end level. As of Dec 31, 2023, long-term debt totaled $1.5 billion, which decreased 1.4% from the level at 2022 end. As of Dec 31, 2023, the company’s adjusted book value per share, which excludes unrealized gains (losses) related to fixed maturities, was $54.54, up 1.5% from the 2022-end level. Annualized core return on equity came in at 19.8%, down 140 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $2.50 per share in the fourth quarter. The dividend will be paid out on Feb 28, 2024, to shareholders of record as of Feb 16, 2024. The aggregate amount of this special dividend will be about $210 million. This special dividend is in addition to the regular quarterly cash dividend of 71 cents per share paid on Jan 25, 2024. AFG paid back $900 million to shareholders, including $466 million or $5.50 per share in special dividends. American Financial repurchased shares worth $213 million in 2023.
2024 Guidance
American Financial continues to expect core net operating earnings of $11 per share. It estimates 8% growth in net written premiums. Combined ratio is expected to be in line with the 2023 figure. Core operating return on equity was approximately 20%, excluding AOCI.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -5.05% due to these changes.
VGM Scores
At this time, American Financial has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Axis Capital (AXS - Free Report) , has gained 3.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Axis Capital reported revenues of $1.46 billion in the last reported quarter, representing a year-over-year change of -2.2%. EPS of $2.94 for the same period compares with $1.95 a year ago.
For the current quarter, Axis Capital is expected to post earnings of $2.70 per share, indicating a change of +15.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.8% over the last 30 days.
Axis Capital has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Why Is American Financial (AFG) Up 5.2% Since Last Earnings Report?
It has been about a month since the last earnings report for American Financial Group (AFG - Free Report) . Shares have added about 5.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
American Financial Q4 Earnings, Revenues Top Estimates
American Financial Group, Inc. reported fourth-quarter 2023 net operating earnings per share of $2.84, which beat the Zacks Consensus Estimate by 1.1%. The bottom line, however, decreased 5% year over year. Results reflected higher premiums and increased average renewal pricing across the Property and Casualty (P&C) group. However, these were offset by higher expenses and lower net investment income.
Behind the Headlines
Total revenues of $1.9 billion increased 1.6% year over year in the quarter. The growth came on the back of higher P&C insurance net earned premiums. The top line beat the Zacks Consensus Estimate by 3.4%.
P&C insurance net earned premiums increased 6.7% to $1.7 billion, in line with our estimate.
Net investment income declined 5.4% year over year to $159 million in the quarter under review. The figure was lower than our estimate of $172.1 million and missed the Zacks Consensus Estimate of $187 million.
Total cost and expenses increased 10.4% year over year to $1.7 billion due to higher P&C insurance losses and expenses, cost of managed investment entities and other expenses. Our estimate was $1.8 billion.
The Specialty P&C Insurance segment generated $1.4 billion in net written premiums, which rose 8% year over year, reflecting a combination of new business opportunities, increased exposures and a good renewal rate environment. Average renewal pricing across P&C Group, excluding workers’ compensation, was up approximately 7% in the quarter.
Underwriting profit of $212 million declined 2.3%. The combined ratio was 87.7%, down 110 basis points year over year. The Zacks Consensus Estimate was pegged at 91.
Segmental Update
Net written premiums of Property & Transportation Group increased 1% year over year to $426 million in the quarter. Our estimate was $423.3 million.
Underwriting profit fell 1.5% to $67 million. The combined ratio was 90.3%, deteriorating 30 basis points year over year.
Net written premiums at Specialty Casualty Group increased 7% year over year to $700 million. Our estimate was $726.2 million. Underwriting profit of $114 million declined 10.9%. Combined ratio was 84.6%, down 330 basis points year over year.
Net written premiums at Specialty Financial increased 26% year over year to $250 million. Our estimate was $239.8 million. Underwriting profit increased 36.4% to $45 million, primarily as a result of higher underwriting profit in financial institutions' business. Combined ratio was 81.3%, up 180 basis points year over year.
Net written premiums at Other divisions increased 13% year over year to $69 million. Our estimate was $74.1 million.
Full-Year Highlights
Core operating earnings were $2.84 per share, which decreased 5% year over year. P&C insurance net earned premiums increased 7.3% to $6.5 billion. Combined ratio deteriorated 410 basis points year over year.
Financial Update
American Financial exited 2023 with total cash and investments of $15.3 billion, which increased 5.2% from the 2022-end level. As of Dec 31, 2023, long-term debt totaled $1.5 billion, which decreased 1.4% from the level at 2022 end. As of Dec 31, 2023, the company’s adjusted book value per share, which excludes unrealized gains (losses) related to fixed maturities, was $54.54, up 1.5% from the 2022-end level. Annualized core return on equity came in at 19.8%, down 140 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $2.50 per share in the fourth quarter. The dividend will be paid out on Feb 28, 2024, to shareholders of record as of Feb 16, 2024. The aggregate amount of this special dividend will be about $210 million. This special dividend is in addition to the regular quarterly cash dividend of 71 cents per share paid on Jan 25, 2024.
AFG paid back $900 million to shareholders, including $466 million or $5.50 per share in special dividends. American Financial repurchased shares worth $213 million in 2023.
2024 Guidance
American Financial continues to expect core net operating earnings of $11 per share. It estimates 8% growth in net written premiums. Combined ratio is expected to be in line with the 2023 figure. Core operating return on equity was approximately 20%, excluding AOCI.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -5.05% due to these changes.
VGM Scores
At this time, American Financial has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Axis Capital (AXS - Free Report) , has gained 3.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Axis Capital reported revenues of $1.46 billion in the last reported quarter, representing a year-over-year change of -2.2%. EPS of $2.94 for the same period compares with $1.95 a year ago.
For the current quarter, Axis Capital is expected to post earnings of $2.70 per share, indicating a change of +15.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.8% over the last 30 days.
Axis Capital has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.