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Here's Why American Financial (AFG) is Tailor-Made for You
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American Financial Group, Inc. (AFG - Free Report) has built a name for itself, offering property and casualty (P&C) insurance products with a primary focus on specialized commercial products for businesses. Notably, the company’s excellent track record of maintaining a favorable combined ratio (the metric has been better than the industry average for 26 of the last 28 years) requires a special mention.
American Financial has witnessed its estimates moving north over the last 60 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2018 and 2019 earnings has been revised 4.7% and 16.5% upward to $8.20 and $8.62, respectively.
Shares of this Zacks Rank #1 (Strong Buy) P&C insurer have outperformed the industry in a year’s time. The stock has rallied 16.8% compared with the industry’s gain of 12.4%.
The stock carries an impressive VGM Score of B. Backtested results have shown that stocks with a VGM Score of A or B combined with a favorable Zacks Rank #1 or 2 (Buy) are the best investment bets.
Let us look at the factors that make American Financial a viable pick for investors now.
Significant Growth in Net Written Premiums: American Financial has been displaying net written premium increase over the past few years, registering a five-year CAGR (2012-2017) of 10%. This premium growth has been boosting the company’s results and we expect the trend to continue in the near term.
On the back of a sustained operational performance, management now projects Specialty P&C net premiums written to grow 3-7% in 2018. Of this, property and transportation group is estimated to generate net written premiums of 2-6% while specialty casualty group is likely to witness net written premium growth of 3-7%. Net written premiums in specialty financial group are projected in the 2-6% range.
Improving Net Investment Income: After witnessing a low interest rate environment, the company began to see substantial improvement in its net investment income (contributing to the company’s major portion of revenues). Higher invested cash and rising interest rates drove such an upside. With indication of three interest rate hikes in 2018 and two more in 2019, the company anticipates better investment results in the near term.
In fact, it estimates 2018 Property and Casualty investment income to increase 4-6% over the 2017 tally.
Continued Price Rise in P&C Business: Price increases in the P&C business have been favoring the company’s results over a considerable period of time. The company remains focused on maintaining satisfactory renewal rates in P&C renewal pricing as the year progresses. The metric is projected in the range of flat to a 1% rise. Management estimates Property and Casualty renewal pricing to inch up 1-3% in 2018.
Balance Sheet Strength: American Financial’s balance sheet strength has supported the company to boost shareholders’ value and raise optimism among investors. The company has displayed a robust liquidity position with its cash and cash equivalents witnessing a five-year CAGR (2012-2017) of 6.5%. Further, the company has also maintained an adjusted financial leverage of around 20%.
Effective Capital Deployment: A strong capital position has helped the company increase dividends, pay special dividends and engage in share repurchases. The company has been paying special dividend each year since 2012 and has paid twice in 2017. Also, the P&C insurer has displayed a stellar dividend payout history with the same registering a five-year CAGR (2012-2017) of 14.9%. With respect to share buyback, the company also has about 4.1 million shares remaining under its authorization.
In fact, the company boasts a five-year (2012-2017) total annualized shareholder return, representing growth in share price plus dividends of about 27%.
Positive Earnings Surprise History: American Financial displays an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 26.3%.
Radian Group offers mortgage and real-estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 7.9%.
CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company came up with positive surprises in the last four quarters with an average beat of 23.9%.
Alleghany provides property and casualty reinsurance products in the United States and worldwide. The company pulled off positive surprises in two of the trailing four quarters with an average beat of 5.2%.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
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Here's Why American Financial (AFG) is Tailor-Made for You
American Financial Group, Inc. (AFG - Free Report) has built a name for itself, offering property and casualty (P&C) insurance products with a primary focus on specialized commercial products for businesses. Notably, the company’s excellent track record of maintaining a favorable combined ratio (the metric has been better than the industry average for 26 of the last 28 years) requires a special mention.
American Financial has witnessed its estimates moving north over the last 60 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2018 and 2019 earnings has been revised 4.7% and 16.5% upward to $8.20 and $8.62, respectively.
Shares of this Zacks Rank #1 (Strong Buy) P&C insurer have outperformed the industry in a year’s time. The stock has rallied 16.8% compared with the industry’s gain of 12.4%.
The stock carries an impressive VGM Score of B. Backtested results have shown that stocks with a VGM Score of A or B combined with a favorable Zacks Rank #1 or 2 (Buy) are the best investment bets.
Let us look at the factors that make American Financial a viable pick for investors now.
Significant Growth in Net Written Premiums: American Financial has been displaying net written premium increase over the past few years, registering a five-year CAGR (2012-2017) of 10%. This premium growth has been boosting the company’s results and we expect the trend to continue in the near term.
On the back of a sustained operational performance, management now projects Specialty P&C net premiums written to grow 3-7% in 2018. Of this, property and transportation group is estimated to generate net written premiums of 2-6% while specialty casualty group is likely to witness net written premium growth of 3-7%. Net written premiums in specialty financial group are projected in the 2-6% range.
Improving Net Investment Income: After witnessing a low interest rate environment, the company began to see substantial improvement in its net investment income (contributing to the company’s major portion of revenues). Higher invested cash and rising interest rates drove such an upside. With indication of three interest rate hikes in 2018 and two more in 2019, the company anticipates better investment results in the near term.
In fact, it estimates 2018 Property and Casualty investment income to increase 4-6% over the 2017 tally.
Continued Price Rise in P&C Business: Price increases in the P&C business have been favoring the company’s results over a considerable period of time. The company remains focused on maintaining satisfactory renewal rates in P&C renewal pricing as the year progresses. The metric is projected in the range of flat to a 1% rise. Management estimates Property and Casualty renewal pricing to inch up 1-3% in 2018.
Balance Sheet Strength: American Financial’s balance sheet strength has supported the company to boost shareholders’ value and raise optimism among investors. The company has displayed a robust liquidity position with its cash and cash equivalents witnessing a five-year CAGR (2012-2017) of 6.5%. Further, the company has also maintained an adjusted financial leverage of around 20%.
Effective Capital Deployment: A strong capital position has helped the company increase dividends, pay special dividends and engage in share repurchases. The company has been paying special dividend each year since 2012 and has paid twice in 2017. Also, the P&C insurer has displayed a stellar dividend payout history with the same registering a five-year CAGR (2012-2017) of 14.9%. With respect to share buyback, the company also has about 4.1 million shares remaining under its authorization.
In fact, the company boasts a five-year (2012-2017) total annualized shareholder return, representing growth in share price plus dividends of about 27%.
Positive Earnings Surprise History: American Financial displays an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 26.3%.
Other Stocks to Consider
Investors interested in top-ranked other stocks from the insurance industry may also check out Radian Group (RDN - Free Report) , CNO Financial Group (CNO - Free Report) and Alleghany Corporation , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Radian Group offers mortgage and real-estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 7.9%.
CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company came up with positive surprises in the last four quarters with an average beat of 23.9%.
Alleghany provides property and casualty reinsurance products in the United States and worldwide. The company pulled off positive surprises in two of the trailing four quarters with an average beat of 5.2%.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>