Shares of American Financial Group, Inc. (AFG - Free Report) have outperformed the Zacks categorized Property and Casualty Insurance industry, quarter to date. Shares gained 4.25% compared with the industry’s 2.56% increase. The company also witnessed estimates moving north over last 60 days.
American Financial is a niche player in P&C and annuity markets and has been experiencing a sustained increase in price. The company expects renewal pricing to increase between flat to a 1% increase. Along with price increase, loss projects cost trends to remain stable and appear relatively benign across all P&C lines.
The Zacks Rank #2 (Buy) insurer has an impressive inorganic profile with strategic buyouts and startups. The company is prudently investing in business it is knowledgeable about. Given a continued solid operational performance, management expects Specialty P&C net premiums written to grow 3–7% (up from 2–6% estimated earlier) in 2017.
Of this, property and transportation group is estimated to generate net written premiums of 2–6% compared with the range of flat to 3% increase projected earlier. Meanwhile, specialty casualty group will generate net written premium growth of 5–9%, unchanged from the previous guidance. Net written premiums in specialty financial group are projected between 2- 6%, up from previous estimate of flat to 4% increase.
Over several years now, the American Financial has been witnessing a favorable combined ratio, which is a measure of an insurer’s underwriting profitability. The company now estimates a combined ratio between 92-94% in 2017.
The property and transportation group is estimated to deliver a combined ratio between 91- 95%, while the specialty casualty group is projected to report a combined ratio varying between 94-96%. The combined ratio for specialty financial group is pegged at a band of 84-88%.
The company’s shareholder-friendly approach makes it an attractive pick for the yield-seeking investors. American Financial had 4.1 million shares remaining under authorization. Last quarter, the company also paid a special dividend besides increasing the payout regularly. The insurer boasts a solid capital position with adjusted financial leverage around 20%, a good cash flow and a strong interest coverage ratio.
Valuation remains impressive on a price to earnings as well as price to book basis. The P/E ratio is 14.9, a discount of 47.5% to the industry average. Though on a price-to-book basis, the multiple is trading slightly higher than the industry average, return on equity of 11.1% is substantially ahead of the industry average of 6.5%.
With respect to earnings revision, the Zacks Consensus Estimate for 2017 improved 4.9% to $6.58, while the same for 2018 increased 3.1% to $6.63. The expected long-term earnings growth is currently tipped at 8%.
Other Stocks to Consider
Investors interested in property and casualty insurers can look at First American Financial Corp. (FAF - Free Report) , State National Companies, Inc. and CNA Financial Corp. (CNA - Free Report) .
State National Companies provides property and casualty insurance in the U.S. The company delivered positive surprises in two of last four quarters, with average beat of 20.54%. The company carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
First American Financial provides financial services. The company delivered positive surprises in last four quarters with an average beat of 14.12%. The company sports a Zacks Rank #2 (Buy).
CNA Financial offers commercial P&C insurance products, mainly across the United States. The company delivered positive surprises in last four quarters with an average beat of 12.45%. The stock carries a Zacks Rank #2.
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