American Financial Hits 52-Week High on Divestiture News - Analyst Blog
On Jun 24, 2015, shares of American Financial Group Inc. AFG scaled a new 52-week high of $66.72 on the back of the latest divestiture announcement.
American Financial’s one-year return of 10.75% was significantly higher than that of the S&P 500’s return of 7.41%. Additionally, the return was above that of other industry players like The Travelers Companies, Inc. TRV and Loews Corporation L that recorded returns of 4.42% and 10.61%, respectively.
Earlier this month, the company announced the divestiture of its New Orleans-based luxury hotel property – Le Pavilion Hotel. This property was managed by the company’s flagship property and casualty (P&C) insurer – Great American Insurance Company. The deal is expected to generate a non-core after tax gain of nearly $25 million in the second quarter of 2015.
American Financial has a long history of acquiring underperforming companies, developing and managing them to enhance their value, and selling them once their value has been optimized. The aforementioned divestiture also reflects this strategy of the company.
Divesting non-core ventures or units is a strategy undertaken by companies to enhance their financial flexibility and help themselves focus on core operations. The Le Pavilion Hotel divestiture will help American Financial emphasize on its core portfolio of providing P&C insurance services or to engage in capital deployments. The additional capital generated from the sale should help in this regard.
Earlier, American Financial reported first-quarter earnings that surpassed the Zacks Consensus Estimate and also improved year over year. The bottom-line growth was driven by higher underwriting profit and net investment income from Specialty Property and Casualty (P&C) insurance operations as well as higher operating earnings from the Annuity and Run-off Long-Term Care and Life segments. Notably, the company delivered positive earnings surprises in all of the last four quarters with an average beat of 11.20%.
American Financial currently carries a Zacks Rank #2 (Buy). Investors interested in the P&C insurance space could also consider Markel Corp. MKL, which sports a Zacks Rank #1 (Strong Buy).
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