American Financial Group Inc. AFG is well-poised for growth based on better pricing, higher renewal ratio, compelling product portfolio, effective capital deployment and better industry fundamentals. The Zacks Rank #2 (Buy) company is a niche player in the property and casualty insurance and annuity markets with focus on specialized commercial products for businesses.
Estimates for American Financial have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2019 earnings per share has moved 0.6% north while that for 2020 moved up 0.9%.
American Financial has a decent surprise history having delivered positive surprises in two of the last four quarters, with the average beat being 5.46%.
American Financial Group’s return on equity — a profitability measure — is 13.9%, better than the industry average of 7.1%.This reflects the company’s efficiency in utilizing its shareholders’ funds.
The stock carries a favorable VGM Score of B. This helps to identify stocks with the most attractive value, best growth and the most promising momentum as well. Back-tested results have shown that stocks with VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 are best investment bets.
American Financial’s product portfolio, acquisitions and investment in strategic opportunities have been driving steady premium growth. The company estimates Specialty Property and Casualty Group’s net written premiums to be flat to up 3% in 2019. Net written premium is expected to grow between 3% and 7% for Specialty Financial Group.
Despite being a property and casualty insurer, banking on prudent underwriting, consistent price increase in Property and Casualty business, the company’s combined ratio has been better than the industry average for more than two decades. For 2019, the company expects Specialty Property and Casualty Group combined ratio between 92% and 94%,
An improved rate environment and higher invested cash helped the company generate higher net investment income. The company expects 2019 investment income to be flat to up 4% in 2019.
A strong balance sheet with modest leverage helps the company pursue strategic growth opportunities and effectively deploy capital. In May 2019, the company paid a special dividend of $1.50 per share. Its dividend yield of 1.6% betters the industry average of 0.4%, making it an attractive pick for yield-seeking investors. Also, it intends to retain about $200–$300 million of the excess capital to maintain flexibility.
Shares of American Financial have gained 10.2% year to date, outperforming the industry's rise of 2.6%. We expect solid operational performance to drive shares going ahead.
The Zacks Consensus Estimate for 2019 earnings per share is pegged at $8.67, indicating 3.2% year-over-year rise. For 2020, the consensus mark for earnings is pegged at $9.00, indicating 3.9% year-over-year growth.
Other Stocks to Consider
Some other top-ranked property and casualty industry players include Argo Group International Holdings, Ltd. ARGO, Hallmark Financial Services, Inc. HALL and Kinsale Capital Group, Inc. KNSL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company delivered four-quarter average positive surprise of 224.07%.
Hallmark Financial underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The company delivered four-quarter average positive surprise of 98.45%.
Kinsale Capital provides casualty and property insurance products in the United States. The company delivered four-quarter average positive surprise of 7.55%.
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American Financial Group, Inc. (AFG) : Free Stock Analysis Report
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