Here's Why Hold Strategy is Apt for American Financial (AFG)
American Financial Group, Inc. AFG has been favored by investors on the back of rate increases, higher retentions in renewal business, a rise in average renewal pricing, stronger underwriting profit and improved guidance.
Growth Projections
The Zacks Consensus Estimate for AFG’s 2024 earnings is pegged at $11.51 per share, indicating a 9.8% increase from the year-ago reported figure on 10% higher revenues of $8.39 billion.
Zacks Rank & Price Performance
AFG currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 14.6% against the industry’s growth of 10.9%.
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Style Score
American Financial has a VGM Score of B. The VGM Score helps identify stocks with the most attractive value, best growth prospects and most promising momentum.
Business Tailwinds
The company’s Property and Casualty (P&C) Insurance segment should benefit from business opportunities, growth in the surplus lines and excess liability businesses, rate increases and higher retentions in renewal business, which boost premium growth.
In the Specialty P&C Insurance segment, growth in net written premiums is estimated in the range of 6-8% for 2023. The company continues to expect net written premiums for Property and Transportation Group in a range of flat to up 2%.
In Specialty Casualty Group, AFG expects net written premiums to be 5-9% higher than the 2022 level. The company has raised its guidance for growth in net written premiums for the segment in the range of 28-32%, up five points from the previous prediction, primarily due to market opportunities in the financial institutions business.
The property and casualty insurer witnessed average renewal pricing across the entire P&C Group. It intends to maintain satisfactory rates in P&C renewal pricing going forward. Average renewal pricing across Property & Casualty Group, excluding workers' comp, grew around 7% for the third quarter. This is the 29th consecutive quarter to report overall renewal rate increases.
The company has achieved renewal rate increases in excess of prospective loss ratio trends to exceed targeted returns. Based on the results through the first nine months of 2023, it continues to expect renewal rates to increase 3-5% overall.
AFG’s combined ratio has been better than the industry’s average for more than two decades. The underwriting profit of the insurer is likely to increase on the back of higher profit in the workers’ compensation, excess and surplus, executive liability, mergers and acquisitions liability businesses and higher underwriting profit in the trade credit and financial institutions businesses.
American Financial has successfully increased its dividends in each of the last 18 years. The robust operating profitability at the P&C segment, stellar investment performance and effective capital management support effective shareholders return.
Stocks to Consider
Some better-ranked stocks from the insurance space are NMI Holdings Inc. NMIH, Kinsale Capital Group, Inc. KNSL and Cincinnati Financial Corporation CINF, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NMI Holdings beat estimates in three of the last four quarters and matched in one, the average being 4.48%. Over the past year, NMIH has surged 47.3%.
The Zacks Consensus Estimate for NMIH’s 2024 earnings has moved 0.2% north, in the past 30 days, reflecting analysts’ optimism on the stock.
Kinsale Capital has a solid record of beating earnings estimates in each of the last trailing four quarters, the average being 14.25%. Over the past year, KNSL has gained 31.8%.
The Zacks Consensus Estimate for KNSL’s 2024 earnings per share is pegged at $14.72, indicating a year-over-year increase of 22%.
Cincinnati Financial has a solid record of beating earnings estimates in three of the last four quarters and missing in one, the average being 38.33%. Over the past year, CINF has lost 2.8%.
The Zacks Consensus Estimate for CINF’s 2024 earnings per share is pegged at $6.05, indicating a year-over-year increase of 8.4%.
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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
NMI Holdings Inc (NMIH) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
