American Financial Group, Inc.’s AFG growth in the surplus lines and excess liability businesses, rate increases, and higher retentions and effective capital deployment make it worth retaining in one’s portfolio.
The Zacks Consensus Estimate for American Financial’s 2022 and 2023 earnings per share is pegged at $11.67 and $12.04, indicating an increase of 0.7% and 3.2%, respectively, from the corresponding year-ago reported figures.
Earnings Surprise History
American Financial has a stellar earnings surprise history. Its bottom line beat estimates in each of the last four quarters, the average being 28.16%.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 0.7% and 1.3% north, respectively, in the past 30 days. This should instill investors' confidence in the stock.
Zacks Rank & Price Performance
American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 0.7% compared with the industry’s increase of 9%.
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Return on Equity (ROE)
American Financial’s ROE for the trailing 12 months is 24.4%, up 940 basis points year over year. This reflects its efficiency in utilizing its shareholders’ funds.
American Financial has a favorable VGM Score of B. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.
The Property and Casualty 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, boosting premium growth.
American Financial is actively involved in start-ups, small-to-medium-sized acquisitions and product launches. The buyout of Verikai, an insurance technology company helped it enter the medical stop-loss business in January 2022. AFG expects artificial intelligence and machine learning to continue enhancing its insurance operations.
American Financial’s combined ratio has been better than the industry average for more than two decades. Combined ratio measures the underwriting profitability of an insurer. 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.
The property and casualty insurer boasts a solid record of dividend hikes for 17 straight years and paid out 18 special dividends in 10 years. Its dividend yield of 1.8% surpassed the industry average of 0.4%. AFG expects to have that less than $100 million of remaining excess capital is available for share repurchases or additional special dividends through the end of 2022.
Net written premiums for 2022 are expected to be 10-12% higher than $5.6 billion reported in 2021, with the 11% midpoint being consistent with the previous guided range.
Of this, net written premiums at Property & Transportation are estimated to grow in the 15-17% range, an improvement from the earlier estimated band of 13-17%. Net written premiums at Specialty Casualty are expected to be 7-9%, above the 2021 results. Excluding workers' compensation, American Financial expects 2022 premiums in this group to be 8-10%, up from the 2021 level. At Specialty Financial, net written premium is expected between 4% and 6%.
American Financial expects 2022 core net operating earnings in the range of $11-$11.75 per share, an increase from the previous guidance of $10.75-$11.75. This guidance reflects higher expected underwriting profit in the Specialty Casualty and Specialty Financial Groups and an average crop year.
For 2022, American Financial expects the combined ratio for the Specialty Property & Casualty Group overall between 86% and 87%. For Property and Transportation Group, it is estimated between 90 and 92. The outlook continues to assume average crop earnings for the year and reflects the impact of Hurricane Ian.
For Specialty Casualty, management expects the outstanding combined ratio within 80-82%. The guidance assumes continued strong results across all businesses in the group, including a steady calendar year profitability in workers' comp businesses overall.
For the Specialty Financial Group, the combined ratio is expected in the range of 83-85%.
Stocks to Consider
Some better-ranked stocks from the finance sector are W.R. Berkley Corporation WRB, Berkshire Hathaway (BRK.B) and Kinsale Capital Group, Inc. KNSL. While W.R. Berkley sports a Zacks Rank #1 (Strong Buy), Berkshire Hathaway and Kinsale Capital carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The bottom line of W.R. Berkley surpassed estimates in each of the last four quarters, the average being 25.63%. In the past year, the insurer has gained 33.4%.
The Zacks Consensus Estimate for W.R. Berkley’s 2022 and 2023 earnings has moved 5.1% and 2.4% north, respectively, in the past 30 days.
Berkshire Hathaway delivered a trailing four-quarter average earnings surprise of 22.18%. In the past year, Berkshire Hathaway has gained 9%.
The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings has moved 6.5% and 0.2% north, respectively, in the past seven days.
Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average being 15.16%. In the past year, Kinsale Capital has gained 43.9%.
The Zacks Consensus Estimate for KNSL’s 2022 and 2023 earnings implies a respective increase of 27.5% and 21.9% from the corresponding year-ago reported numbers.
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