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Here's Why Investors Should Buy American Financial (AFG) Stock
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American Financial Group Inc.’s (AFG - Free Report) improved pricing, higher renewal ratio, a solid capital position and effective capital deployment make it a stock worth adding to one’s portfolio.
This niche player in the property and casualty insurance and annuity markets with a focus on specialized commercial products for businesses has a solid earnings surprise history, having surpassed estimates in the last seven quarters.
This insurer has an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
The trailing 12 months ROE is 21%, better than the industry average of 5.7%, reflecting efficiency in utilizing shareholders’ funds.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 9.8% and 6.6% north, respectively, in the past 30 days, reflecting analyst optimism.
Zacks Rank & Price Performance
AFG currently carries a Zacks Rank #2 (Buy). Year to date, the stock has lost 1.7% against the industry’s growth of 3.1%.
Image Source: Zacks Investment Research
Growth Projections
The Zacks Consensus Estimate for 2023 earnings stands at $11.23, implying an increase of 2.3% from the year-ago reported figure on 13.7% higher revenues of $7.5 billion.
The stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a favorable Value Score, when combined with a solid Zacks Rank, are the best investment bets.
Growth Drivers
American Financial is poised to gain on solid performances across Property and Transportation, Specialty Casualty, and Specialty Financial lines of business.
New business opportunities, growth in the surplus lines and excess liability businesses, rate increases and higher retentions in renewal business should continue to drive premiums higher.
American Financial is actively involved in start-ups, small-to-medium-sized acquisitions, and product launches. It also focuses on small and underserved risks areas. The buyout of Verikai, an insurance technology company, in January 2022 helped it enter the medical stop-loss business. AFG expects artificial intelligence and machine learning to continue to enhance its insurance operations.
Impressive Dividend History
The property and casualty insurer has a solid record of increasing dividends for 14 straight years and has paid out 18 special dividends in 11 years. Its dividend yield of 1.5% surpassed the industry average of 0.3%.
AFG expects to have at least $400 million to $500 million of excess capital available for share repurchases and additional special dividends through the end of 2022.
Upbeat Guidance
Net written premiums for 2022 are expected to be 8% to 12% higher than $5.6 billion reported in 2021 in Specialty Property and Casualty operations. Of this, net written premiums at Property & Transportation are estimated to grow in the range of 11% to 15%, an improvement from the range of 8% to 12% estimated previously, due to higher-than-originally expected spring discovery pricing in the crop insurance business. Net written premiums at Specialty Casualty are expected to grow 6-10%. Excluding workers' comp, AFG expects 2022 premiums in this group to grow in the range of 7% to 11%. At Specialty Financial, the net written premium is expected to grow 4%-8%.
For 2022, AFG expects the combined ratio for the Specialty Property & Casualty Group to be between 85 and 87% (improved from 86-88). For Property and Transportation Group, it is estimated between 87 and 91. The outlook assumes average crop earnings for 2022. For Specialty Casualty, American Financial expects the combined ratio to be between 80 and 84 (improved from 85-87). For Specialty Financial Group, the combined ratio is expected to be in the range of 84 to 88,
AFG estimates earnings of $10.50 to $11.50 per share in 2022.
W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley's stock has increased 33.7%.
The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 4.9% and 4.1% north, respectively, in the past 30 days.
The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 17.4%.
The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 280.9% and 75%, respectively.
RLI has a solid track record of beating earnings estimates in each of the last seven quarters. In the past year, RLI stock has increased 9.5%.
The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.
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Here's Why Investors Should Buy American Financial (AFG) Stock
American Financial Group Inc.’s (AFG - Free Report) improved pricing, higher renewal ratio, a solid capital position and effective capital deployment make it a stock worth adding to one’s portfolio.
This niche player in the property and casualty insurance and annuity markets with a focus on specialized commercial products for businesses has a solid earnings surprise history, having surpassed estimates in the last seven quarters.
This insurer has an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
The trailing 12 months ROE is 21%, better than the industry average of 5.7%, reflecting efficiency in utilizing shareholders’ funds.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 9.8% and 6.6% north, respectively, in the past 30 days, reflecting analyst optimism.
Zacks Rank & Price Performance
AFG currently carries a Zacks Rank #2 (Buy). Year to date, the stock has lost 1.7% against the industry’s growth of 3.1%.
Image Source: Zacks Investment Research
Growth Projections
The Zacks Consensus Estimate for 2023 earnings stands at $11.23, implying an increase of 2.3% from the year-ago reported figure on 13.7% higher revenues of $7.5 billion.
It has a Growth Score of A.
Value Score
The stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a favorable Value Score, when combined with a solid Zacks Rank, are the best investment bets.
Growth Drivers
American Financial is poised to gain on solid performances across Property and Transportation, Specialty Casualty, and Specialty Financial lines of business.
New business opportunities, growth in the surplus lines and excess liability businesses, rate increases and higher retentions in renewal business should continue to drive premiums higher.
American Financial is actively involved in start-ups, small-to-medium-sized acquisitions, and product launches. It also focuses on small and underserved risks areas. The buyout of Verikai, an insurance technology company, in January 2022 helped it enter the medical stop-loss business. AFG expects artificial intelligence and machine learning to continue to enhance its insurance operations.
Impressive Dividend History
The property and casualty insurer has a solid record of increasing dividends for 14 straight years and has paid out 18 special dividends in 11 years. Its dividend yield of 1.5% surpassed the industry average of 0.3%.
AFG expects to have at least $400 million to $500 million of excess capital available for share repurchases and additional special dividends through the end of 2022.
Upbeat Guidance
Net written premiums for 2022 are expected to be 8% to 12% higher than $5.6 billion reported in 2021 in Specialty Property and Casualty operations. Of this, net written premiums at Property & Transportation are estimated to grow in the range of 11% to 15%, an improvement from the range of 8% to 12% estimated previously, due to higher-than-originally expected spring discovery pricing in the crop insurance business. Net written premiums at Specialty Casualty are expected to grow 6-10%. Excluding workers' comp, AFG expects 2022 premiums in this group to grow in the range of 7% to 11%. At Specialty Financial, the net written premium is expected to grow 4%-8%.
For 2022, AFG expects the combined ratio for the Specialty Property & Casualty Group to be between 85 and 87% (improved from 86-88). For Property and Transportation Group, it is estimated between 87 and 91. The outlook assumes average crop earnings for 2022. For Specialty Casualty, American Financial expects the combined ratio to be between 80 and 84 (improved from 85-87). For Specialty Financial Group, the combined ratio is expected to be in the range of 84 to 88,
AFG estimates earnings of $10.50 to $11.50 per share in 2022.
Other Stocks to Consider
Some other top-ranked stocks from the same space are W.R. Berkley Corporation (WRB - Free Report) , HCI Group, Inc. (HCI - Free Report) and RLI Corp. (RLI - Free Report) . While W.R. Berkley and HCI Group sport a Zacks Rank #1 (Strong Buy), RLI Corp. carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley's stock has increased 33.7%.
The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 4.9% and 4.1% north, respectively, in the past 30 days.
The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 17.4%.
The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 280.9% and 75%, respectively.
RLI has a solid track record of beating earnings estimates in each of the last seven quarters. In the past year, RLI stock has increased 9.5%.
The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.