Yahoo Finance Should You Retain American Financial (AFG) in Your Portfolio?
American Financial Group, Inc. AFG has been gaining momentum on the back of solid segmental performances and effective capital deployment.
Earnings Surprise History
American Financial has a solid record of beating earnings estimates in each of the last seven quarters.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past 60 days. This should instill investors' confidence in AFG stock.
Zacks Rank & Price Performance
American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 3.9% against the industry’s decline of 9.6%.
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Return on Equity (ROE)
American Financial’s ROE for the trailing 12 months is 21.1%, better than the industry average of 5.8%. This reflects its efficiency in utilizing shareholders’ funds.
Business Tailwinds
Banking on solid performances across Property and Transportation, Specialty Casualty, and Specialty Financial lines of business, the Property and Casualty Insurance business of American Financial should continue to gain.
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, which boost 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, 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.
The property and casualty insurer has a solid record of increasing dividends for 17 straight years and has paid out 18 special dividends in 11 years. Its dividend yield of 1.7% surpassed the industry average of 0.4%. 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
For 2022, net written premiums are expected to be 8% to 12% higher than the $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. Net written premiums at Specialty Casualty are expected to grow 6-10%. Excluding workers' comp, the company expects 2022 premiums in this group to grow in the range of 7% to 11% in 2022.
For 2022, American Financial expects renewal rates to increase between 5% and 7% in Specialty P&C operations overall.
For 2022, American Financial expects the combined ratio of Specialty Property & Casualty Group overall 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, AFG expects a combined ratio 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, owing to solid underwriting results so far this year.
Stocks to Consider
Some better-ranked stocks from the finance sector are W.R. Berkley Corporation WRB, HCI Group, Inc. HCI and Cincinnati Financial Corporation CINF. While W.R. Berkley and HCI Group sport a Zacks Rank #1 (Strong Buy), Cincinnati Financial carries Zacks Rank #2 (Buy). 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 32.4%.
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 60 days. In the past year, HCI Group’s stock has lost 33.6%.
The Zacks Consensus Estimate for HCI’s 2022 and 2023 earnings per share indicates a year-over-year increase of 280.9% and 75%, respectively.
The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 32.55%. In the past year, the CINF stock has lost 4.6%.
The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 5.7% and 5.5% north, respectively, in the past 60 days.
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