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Reasons Why Investors Should Retain American Financial (AFG)

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.

Growth Projections

The Zacks Consensus Estimate for American Financial’s 2023 earnings is pegged at $11.70, indicating a 0.6% increase from the year-ago reported figure on 1.8% higher revenues of $7.19 billion.

The consensus estimate for 2024 earnings stands at $11.96, indicating a 2.2% increase from the year-ago reported figure on 9.1% higher revenues of $7.85 billion.

Earnings Surprise History

American Financial has a solid record of beating earnings estimates in each of the last four quarters, the average being 18.93%.

Zacks Rank & Price Performance

American Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 1.4% compared with the industry’s decrease of 0.1%.

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Zacks Investment Research


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Return on Equity (ROE)

American Financial’s ROE for the trailing 12 months is 23.5%, up 590 basis points year over year. This reflects its efficiency in utilizing its 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.

The property and casualty insurer is actively involved in start-ups, small-to-medium-sized acquisitions and product launches. 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.

In 2022, American Financial repurchased shares for $11.3 million. In February 2023, AFG declared a special cash dividend of $4 per share. The company expects to generate significant excess capital in 2023 where it could deploy in excess of $500 million of excess capital for share repurchases or additional special dividends through the end of 2023.

Upbeat Guidance

Net written premiums for 2023 are expected to be 3% to 5% higher than the $6.2 billion reported in 2022. Excluding crop, the company expects growth in the range of 4% to 6%. Property and Transportation Group growth in net written premiums is estimated at 1% to 3%.

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Specialty Casualty Group estimates growth in net written premiums in a range of 4% to 8%. Excluding workers' comp, it expects premiums in this group to grow in the range of 6% to 10%.

Specialty Financial Group expects growth in net written premiums in the range of 4% to 8%, based on projected growth in nearly all the businesses across this group.

American Financial expects core net operating earnings in 2023 in the range of $11 to $12 per share, which produces a core return on equity of more than 20% at the midpoint. The guidance reflects an average crop year and expectations and assumptions regarding investment income, including an estimated return on alternative investments of 7% in 2023.

American Financial expects a combined ratio for the Specialty Property and Casualty Group overall between 86% and 88% in 2023. For 2023, the company expects Property and Transportation Group combined ratio in the range of 89% to 93%. The Specialty Casualty Group is expected to produce a combined ratio in the range of 80% to 84%.

AFG forecast core net operating earnings guidance established in the range of $11-$12 per share, which would produce a core return on equity of more than 20% at the midpoint. The outlook assumes a return of approximately 7% on alternative investments, compared with 13.2% earned on these investments in 2022 and an average crop year.

American Financial expects an overall calendar year combined ratio in the range of 86% to 88% and net written premiums to be up 3% to 5% when compared with the $6.2 billion reported in 2022.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Axis Capital Holdings Limited AXS, Everest Re Group, Ltd. RE and Kinsale Capital Group, Inc. KNSL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axis Capital beat estimates in three of the last four quarters and missed in one, the average being 5.70%. The Zacks Consensus Estimate for both 2023 and 2024 has moved 0.1% north in the past seven days.

The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $7.53 and $8.42, indicating year-over-year increase of 29.6% and 11.7%, respectively. In the past year, AXS has gained 18.7%.

The Zacks Consensus Estimate for Everest Re’s 2023 and 2024 earnings per share is pegged at $44.68 and $51.29, indicating year-over-year increase of 64.9% and 15.7%, respectively. In the past year, RE has gained 35.8%.

RE beat estimates in each of the last four quarters, the average being 43.2%.

Kinsale Capital has a solid track record of beating earnings estimates in each of the last four quarters, the average being 13.83%. In the past year, KNSL has gained 53.8%.

The Zacks Consensus Estimate for Kinsale Capital’s 2023 and 2024 earnings per share is pegged at $9.86 and $11.85, indicating year-over-year increase of 26.4% and 20.2%, respectively.

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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report

Everest Re Group, Ltd. (RE) : Free Stock Analysis Report

American Financial Group, Inc. (AFG) : Free Stock Analysis Report

Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report

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