American Financial Group (AFG - Free Report) is poised to grow on improving premiums, favorable combined ratio and effective capital management. The stock carries a favorable Growth Score of B. Growth Score analyzes a company’s growth prospects.
This company has a solid history of delivering positive surprise in each of the last four quarters, with average beat being 5.73%.
The company’s return on equity of 13% is higher than 6.5% for the industry, reflecting the company’s tactical efficiency in using shareholder funds.
American Financial continues to benefit from its robust and casualty operations that in turn have been fueling premium growth over the last several years. Prudent investments in businesses along with organic growth should help the company generate steady top-line growth.
The company continues to witness better renewal pricing. Management thus intends to maintain satisfactory rates in P&C renewal pricing and hence estimates P&C renewal pricing in 2020 to be up 5-8%, an improvement from 3% to 5% estimated earlier.
Banking on robust operating profitability at the P&C segment, the company could deliver combined ratio better than the industry average for more than two decades. For 2020, the company expects combined ratio for the Specialty Property & Casualty Group in the range of 92% to 94%, in the range of 92% to 96% for Property and Transportation Group and between 90% and 94% for Specialty Casualty Group in 2020. For Specialty Financial Group combined ratio is expected to be in the range of 87% to 91%.
American Financial has traditionally maintained moderate adjusted financial leverage around 20%, with good cash flow and interest coverage ratio. The Zacks Rank #3 (Hold) niche player in the P&C and annuity market intends to hold back about $200-$300 million of the excess capital to maintain flexibility.
Given solid operational performance, the company has hiked its dividend for the last 14 years besides paying out special dividend. Its dividend yield of 3% lies way above the industry’s average of 0.5%. American Financial also engages in paying special dividends to its shareholders. These make the stock an attractive pick for yield seeking investors.
The company’s VGM Score of A bodes well. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.
Shares of American Financial have lost 44.9% year to date compared with the industry's decrease of 23.3%.
Stocks to Consider
Some top-ranked companies from the same space are National General Holdings Corp (NGHC - Free Report) , Allstate Corporation (ALL - Free Report) and Progressive Corporation (PGR - Free Report) ).
National General, a specialty personal lines insurance holding company, provides various insurance products and services in the United States, Bermuda, Luxembourg and Sweden. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Allstate provides property and casualty, and other insurance products in the United States and Canada. The company surpassed estimates in each of the last four quarters, the average positive surprise being 18.45%.The stock carries Zacks Rank #2.
Progressive provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. The company's trailing four-quarter average positive surprise is 15.58%. The stock carries Zacks Rank #2.
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