Back to top

Add American Financial (AFG) for an Impressive Portfolio

Read MoreHide Full Article

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.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

CNA Financial Corporation (CNA) - free report >>

First American Corporation (The) (FAF) - free report >>

American Financial Group, Inc. (AFG) - free report >>

More from Zacks Analyst Blog

You May Like