Here's Why Investors Should Hold American Financial (AFG)
American Financial Group, Inc.’s AFG business opportunities, growth in the surplus lines and excess liability businesses, rate increases, higher retentions and effective capital deployment make it worth retaining in one’s portfolio.
Growth Projections
The Zacks Consensus Estimate for American Financial’s 2024 earnings is pegged at $12.03, indicating a 4.4% increase from the year-ago reported figure on 10.5% higher revenues of $7.97 billion.
Earnings Surprise History
American Financial has a decent earnings surprise history. It beat estimates in each of the last seven quarters.
Zacks Rank & Price Performance
American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 13.4% against the industry’s increase of 19.4%.
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Return on Equity (ROE)
AFG’s ROE for the trailing 12 months is 23.4%, which compares favorably with the industry average of 6.8%. This reflects its efficiency in utilizing its shareholders’ funds.
Style Score
American Financial has a favorable VGM Score of A. The VGM Score helps identify stocks with the most attractive value, best growth and most promising momentum.
Business Tailwinds
The Property and Casualty (P&C) Insurance segment of American Financial 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.
Net written premiums for 2023 are expected to be 3% to 5% higher than the $6.2 billion reported in 2022. Excluding crop, the company expects growth in the range of 3% to 6%.
The property and casualty insurer witnessed average renewal pricing across the entire P&C Group. The renewal rate environment has remained relatively consistent throughout 2022 and enabled the insurer to exceed targeted returns in nearly all of the specialty P&C businesses. American Financial expects renewal rates to increase between 3% and 5% in Specialty Property & Casualty operations overall, which is 1 point higher than the midpoint of previous guidance.
American Financial’s combined ratio has been better than the industry average for more than two decades. The underwriting profit of the insurer is likely to increase on 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.
AFG expects a combined ratio for the Specialty Property & Casualty group overall between 87% and 89%, which indicates an increase of 1 point at the midpoint of the previous range of 86% to 88%.
The robust operating profitability in the P&C segment, stellar investment performance and effective capital management support effective shareholders’ returns. American Financial expects its operations to generate significant excess capital in 2023 where it could deploy in excess of $500 million of excess capital for share repurchases or additional special dividends through the end of 2023.
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are Kinsale Capital Group, Inc. KNSL, RLI Corp. RLI and Root, Inc. ROOT. While RLI Corp. sports a Zacks Rank #1 (Strong Buy), Kinsale Capital and Root carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kinsale Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 14.77%. In the past year, KNSL has gained 71.7%.
The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings per share is pegged at $10.37 and $12.41, indicating a year-over-year increase of 32.9% and 19.6%, respectively.
RLI Corp. beat estimates in each of the last four quarters, the average being 43.50%. In the past year, RLI has gained 20.6%.
The Zacks Consensus Estimate for RLI’s 2023 and 2024 earnings has moved 10.1% and 3.7% north, respectively, in the past 60 days.
Root beat estimates in each of the last four quarters, the average being 18.24%. In the past year, the insurer has lost 71.9%.
The Zacks Consensus Estimate for ROOT’s 2023 and 2024 earnings per share indicates a year-over-year increase of 43.8% and 42.5%, respectively.
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RLI Corp. (RLI) : Free Stock Analysis Report
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
Root, Inc. (ROOT) : Free Stock Analysis Report
