American Financial Group, Inc. (AFG - Free Report) is poised for growth, given better pricing, improving rate environment, strong operational performance and a solid capital management. This Zacks Rank #1 (Strong Buy) property and casualty insurer remains promising, banking on several growth prospects.
Growth Projections: The Zacks Consensus Estimate for 2018 earnings per share is pegged at $8.20 while the same for 2019 stands at $8.62, translating to a respective 2.2% and 5.1% year-over-year increase.
American Financial has expected long-term earnings per share growth of 12.1%, exceeding the industry average of 11.3%.
Impressive Price Performance: Shares of American Financial have rallied 25.5% in a year, outperforming the industry’s growth of 18% and higher than the S&P 500 index’s 19.1% gain.
Upward Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year and 2019 earnings being revised 7.6% and 27.7% upward, respectively, over the last 30 days.
Solid Positive Earnings Surprise History: American Financial has surpassed the Zacks Consensus Estimate in the last five quarters with an average beat of 25.49%.
Growth Drivers in Place
American Financial is a niche player in the property and casualty and annuity markets. Strategic initiatives coupled with a solid operational performance have helped the insurer generate solid premium growth. Management expects Specialty P&C net premiums written to grow in the range of 3-7% in 2018.
Improvement in pricing has also been driving the company’s premiums. American Financial intends to maintain satisfactory rates in P&C renewal pricing, increasing 1-3% in 2018.
American Financial is actively involved in startups, small-to-medium sized acquisitions and product launches. Its inorganic growth story is impressive.
Its combined ratio has been better than the industry average and it estimates the metric between 92% and 94% for 2018.
Improving net investment income over the last few quarters raises optimism. Given the gradually improving interest rate environment, the company expects investment income to grow 4-6% in 2018.
A strong capital position aids the company to return value to shareholders through dividend hikes and buybacks. While the company announced a 12% dividend raise in August 2017, it also paid special dividends twice in the full year. The company also has 4.1 million shares remaining under its authorization. Five-year total annualized shareholder return representing growth in share price plus dividends was about 27%, exceeding the total return performance of the S&P 500 index.
Other Stocks to Consider
Investors interested in the insurance industry can also look at NMI Holdings Inc. (NMIH - Free Report) , Infinity Property and Casualty Corporation and Donegal Group Inc. (DGICA - Free Report) .
NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with an 85.1% earnings surprise last quarter. Shares of the company have soared 56.3% in a year. The stock sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Infinity Property and Casualty provides personal automobile insurance products in the United States. Last quarter, the company delivered an earnings surprise of 262.25%. Shares of the company have surged 40.5% in a year. The stock carries a Zacks Rank #2 (Buy).
Donegal Group provides property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England and Southern states. The company pulled off a 10.72% earnings surprise in the preceding quarter. Shares of the company have gained 3.2% in a year. The stock carries a Zacks Rank of 2.
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