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American Financial (AFG) Up 6.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for American Financial Group (AFG - Free Report) . Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q3 Earnings Miss on Higher Catastrophe Losses
American Financial Group, Inc. reported third-quarter 2024 net operating earnings per share of $2.31, which missed the Zacks Consensus Estimate by 7.9%. The bottom line decreased 5.7% year over year. The decrease was due to higher year-over-year catastrophe losses related primarily to Hurricane Helene and lower favorable prior-year reserve development in the Specialty Property and Casualty (P&C) insurance operations, partially offset by higher investment income.
American Financial’s results reflected higher premiums, increased average renewal pricing across the P&C group and improved net investment income. Higher expenses and catastrophe losses were the offsets.
Behind the Headlines
Total revenues of $2.2 billion increased 10.4% year over year. The growth came on the back of higher P&C insurance net earned premiums and net investment income. The top line beat the Zacks Consensus Estimate by 10.7%. Net investment income climbed 19% year over year to $200 million in the quarter under review. The figure was higher than our estimate of $164.7 million and beat the Zacks Consensus Estimate of $183 million.
Total cost and expenses increased 10% year over year to $2.1 billion due to higher P&C insurance losses and expenses and other expenses. The figure was higher than our estimate of $1.9 billion.
Segmental Update
The Specialty P&C Insurance segment generated $2.3 billion in net written premiums, which rose 14% year over year. The growth reflected additional premiums from the Crop Risk Services acquisition. Average renewal pricing across P&C Group, excluding workers’ compensation, was up approximately 8% in the third quarter and 7% overall.
Net written premiums in Property & Transportation Group increased 26% year over year to $1.1 billion in the quarter. The figure was higher than our estimate of $934.5 million. Net written premiums at Specialty Casualty Group increased 4% year over year to $863 million. The figure was lower than our estimate of $868.3 million.
Further, net written premiums at Specialty Financial increased 9% year over year to $284 million. The figure was lower than our estimate of $327.5 million. Net written premiums at other divisions remained unchanged year over year at $66 million. The figure was lower than our estimate of $70.5 million.
The Specialty P&C Insurance segment’s underwriting profit decreased 18.2% year over year to $117 million in the quarter. The figure was lower than our estimate of $163.8 million. Catastrophe losses were $90 million in the reported quarter, wider than the year-ago loss of $56 million. The losses primarily resulted from Hurricane Helene.
In the Property and Transportation Group, higher year-over-year underwriting profit in the agricultural businesses was more than offset by higher catastrophe losses. In the Specialty Casualty Group, higher underwriting profit in targeted markets businesses was more than offset by lower year-over-year underwriting profit in excess and surplus businesses and, to a lesser extent, workers’ compensation and executive liability businesses. The combined ratio deteriorated 210 basis points (bps) year over year to 94.3% in the segment.
Financial Update
American Financial exited the third quarter with total cash and investments of $15.7 billion, which increased 3.1% from the 2023-end level. The figure is lower than our estimate of $16.3 billion. As of Sept. 30, 2024, long-term debt totaled $1.5 billion, which remained unchanged from the level at 2023-end. As of Sept. 30, 2024, the company’s book value per share, excluding accumulated other comprehensive income (AOCI), was $57.71, up 5.5% from the 2023-end level. Annualized return on equity came in at 15.2% for the third quarter, which contracted 50 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $4.00 per share in the third quarter. The dividend will be paid out on Nov. 26 to shareholders of record at the close of business as of Nov. 15, 2024. The aggregate amount of this special dividend will be approximately $335 million. With this special dividend, AFG has declared $50.00 per share in special dividends since the beginning of 2021, including $6.50 per share in 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, American Financial has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Kinsale Capital Group, Inc. (KNSL - Free Report) , has gained 10.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Kinsale Capital Group reported revenues of $418.06 million in the last reported quarter, representing a year-over-year change of +33%. EPS of $4.20 for the same period compares with $3.31 a year ago.
Kinsale Capital Group is expected to post earnings of $4.15 per share for the current quarter, representing a year-over-year change of +7.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kinsale Capital Group. Also, the stock has a VGM Score of B.
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American Financial (AFG) Up 6.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for American Financial Group (AFG - Free Report) . Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
American Financial Q3 Earnings Miss on Higher Catastrophe Losses
American Financial Group, Inc. reported third-quarter 2024 net operating earnings per share of $2.31, which missed the Zacks Consensus Estimate by 7.9%. The bottom line decreased 5.7% year over year. The decrease was due to higher year-over-year catastrophe losses related primarily to Hurricane Helene and lower favorable prior-year reserve development in the Specialty Property and Casualty (P&C) insurance operations, partially offset by higher investment income.
American Financial’s results reflected higher premiums, increased average renewal pricing across the P&C group and improved net investment income. Higher expenses and catastrophe losses were the offsets.
Behind the Headlines
Total revenues of $2.2 billion increased 10.4% year over year. The growth came on the back of higher P&C insurance net earned premiums and net investment income. The top line beat the Zacks Consensus Estimate by 10.7%. Net investment income climbed 19% year over year to $200 million in the quarter under review. The figure was higher than our estimate of $164.7 million and beat the Zacks Consensus Estimate of $183 million.
Total cost and expenses increased 10% year over year to $2.1 billion due to higher P&C insurance losses and expenses and other expenses. The figure was higher than our estimate of $1.9 billion.
Segmental Update
The Specialty P&C Insurance segment generated $2.3 billion in net written premiums, which rose 14% year over year. The growth reflected additional premiums from the Crop Risk Services acquisition. Average renewal pricing across P&C Group, excluding workers’ compensation, was up approximately 8% in the third quarter and 7% overall.
Net written premiums in Property & Transportation Group increased 26% year over year to $1.1 billion in the quarter. The figure was higher than our estimate of $934.5 million. Net written premiums at Specialty Casualty Group increased 4% year over year to $863 million. The figure was lower than our estimate of $868.3 million.
Further, net written premiums at Specialty Financial increased 9% year over year to $284 million. The figure was lower than our estimate of $327.5 million.
Net written premiums at other divisions remained unchanged year over year at $66 million. The figure was lower than our estimate of $70.5 million.
The Specialty P&C Insurance segment’s underwriting profit decreased 18.2% year over year to $117 million in the quarter. The figure was lower than our estimate of $163.8 million. Catastrophe losses were $90 million in the reported quarter, wider than the year-ago loss of $56 million. The losses primarily resulted from Hurricane Helene.
In the Property and Transportation Group, higher year-over-year underwriting profit in the agricultural businesses was more than offset by higher catastrophe losses. In the Specialty Casualty Group, higher underwriting profit in targeted markets businesses was more than offset by lower year-over-year underwriting profit in excess and surplus businesses and, to a lesser extent, workers’ compensation and executive liability businesses. The combined ratio deteriorated 210 basis points (bps) year over year to 94.3% in the segment.
Financial Update
American Financial exited the third quarter with total cash and investments of $15.7 billion, which increased 3.1% from the 2023-end level. The figure is lower than our estimate of $16.3 billion. As of Sept. 30, 2024, long-term debt totaled $1.5 billion, which remained unchanged from the level at 2023-end. As of Sept. 30, 2024, the company’s book value per share, excluding accumulated other comprehensive income (AOCI), was $57.71, up 5.5% from the 2023-end level. Annualized return on equity came in at 15.2% for the third quarter, which contracted 50 bps year over year.
Prudent Capital Deployment
American Financial declared a special cash dividend of $4.00 per share in the third quarter. The dividend will be paid out on Nov. 26 to shareholders of record at the close of business as of Nov. 15, 2024. The aggregate amount of this special dividend will be approximately $335 million. With this special dividend, AFG has declared $50.00 per share in special dividends since the beginning of 2021, including $6.50 per share in 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, American Financial has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Kinsale Capital Group, Inc. (KNSL - Free Report) , has gained 10.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Kinsale Capital Group reported revenues of $418.06 million in the last reported quarter, representing a year-over-year change of +33%. EPS of $4.20 for the same period compares with $3.31 a year ago.
Kinsale Capital Group is expected to post earnings of $4.15 per share for the current quarter, representing a year-over-year change of +7.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kinsale Capital Group. Also, the stock has a VGM Score of B.