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Should You Hold American Financial in Your Portfolio?

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American Financial Inc. (AFG - Free Report) , a niche player in the property and casualty, and annuity markets, should continue to benefit from strategic acquisitions, better pricing and improved rate environment. This Zacks Rank #3 (Hold) insurer is known for having a combined ratio better that its industry in 26 of the last 28 years.

The Zacks Consensus Estimate for its current-year earnings has moved 0.4% north over the past 30 days.

Shares of American Financial Group have lost 5.1% year to date against the industry’s 0.9% increase.



The stock carries a favorable VGM Score of A. This helps to identify stocks with the most attractive value, best growth rate and solid momentum.

Let’s focus on the factors that make American Financial a good stock to buy for greater returns.

Solid Guidance: Given continued solid operational performance, management expects P&C net premiums written to grow 5-7% in 2018 from 4-8% predicted earlier. Of this, net written premiums at property and transportation group are expected to be flat, ranging between (1%) and 2% in 2018, while the same in specialty casualty group is estimated to grow 9-12%, up from 6-10% expected earlier. Net written premiums in specialty financial group are estimated in the range of 3-6% versus 3-7% estimated earlier.

Management estimates Property and Casualty renewal pricing in 2018 to inch up 1-2%.

Improving Top Line: Top line at American Financial has been witnessing growth over the last several years. The company witnessed 10-year CAGR of 4.5%, owing to impressive inorganic profile, organic growth and improving investment income.

Intelligent Capital Management: American Financial boasts a healthy balance sheet and cash position. These have helped the insurer increase dividend for 13 straight years besides paying special dividend. The company’s dividend yield is 1.6%, better than the industry average of 0.5%. The company also has 4.1 million shares remaining under its authorization.

Return on Equity: American Financial Group’s return on equity — a profitability measure — is 15.4%, better than the industry average of 6.6%. This reflects the company’s efficiency in utilizing its shareholders’ funds.

Growth Projections: The Zacks Consensus Estimate for earnings per share is pegged at $8.60 for 2018 and at $8.62 for 2019. The consensus mark for 2018 indicates a year-over-year increase of 31.3% while the same for 2019 indicates 0.2% rise.

The expected long-term earnings growth rate is pegged at 12.5%, higher than the industry average of 10.6%.

Growth Score: The stock carries a Growth Score of B. Growth Score analyzes the growth prospects of a company.

Positive Earnings Surprise History: American Financial Group surpassed the Zacks Consensus Estimate in the last eight quarters with the average beat being 22.55%, reflecting its operational efficiencies.

Stocks to Consider

Some better-ranked property and casualty insurers are Berkshire Hathaway Inc. (BRK.B - Free Report) , Mercury General Corp. (MCY - Free Report) and Atlas Financial Holdings, Inc. (AFH - Free Report) .

Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. It came up with a beat of 11.60% in the previously reported quarter. It sports a Zacks Rank #1 (Strong Buy). YYou can see the complete list of today’s Zacks #1 Rank stocks here.

Mercury General engages in writing personal automobile insurance in the United States. It came up with a beat of 85.00% in the previously reported quarter. It sports a Zacks Rank #1.

Atlas Financial engages in underwriting commercial automobile insurance policies in the United States. It carries a Zacks Rank #2 (Buy).

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