Yahoo Finance Why Is American Financial (AFG) Down 0.2% Since Last Earnings Report?
It has been about a month since the last earnings report for American Financial Group (AFG). Shares have lost about 0.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is American Financial due for a breakout? 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 Q4 Earnings Beat, Premiums Rise Y/Y
American Financial Group, Inc. delivered fourth-quarter 2022 core net operating earnings per share of $2.99, which outpaced the Zacks Consensus Estimate by 1.3%. The bottom line decreased 27.4% year over year. The quarterly results reflected higher Property and casualty (P&C) insurance net earned premiums, offset by higher expenses and lower net investment income.
Behind the Headlines
Total operating revenues amounted to $1.9 billion in the fourth quarter, which rose 9% year over year. The improvement can be attributed to growth in P&C insurance net earned premiums. The top line beat the Zacks Consensus Estimate by 13.3%. P&C insurance net earned premiums of $1.6 billion climbed 11.8% year over year. Net investment income decreased 19.6% year over year to $168 million. The figure was lower than our estimate of $194.5 million. On a year-over-year basis, other income of $24 million decreased 44.2% in the quarter under review. Total costs and expenses of American Financial increased 20.6% year over year to $1.6 billion driven by higher P&C insurance losses & expenses and expenses of managed investment entities. The figure was higher than our estimate of $1.4 billion.
Segment Results
Specialty P&C insurance operations generated $1.3 billion in net written premiums, which grew 5% year over year on the back of growth within each of the Specialty P&C groups as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment.
Pretax core operating earnings of P&C Insurance Segment of $363 million in the fourth quarter decreased 25% year over year.
The segment’s underwriting profit of $217 million decreased 22.8% year over year in the reported quarter due to lower year-over-year underwriting profit in Property and Transportation and Specialty Casualty Groups. It was partially offset by higher underwriting profit in Specialty Financial Group. Consequently, Specialty Group’s aggregate combined ratio deteriorated 590 basis points (bps) year over year to 86.6% due to deterioration of 950 bps in Property & Transportation and 330 bps in Specialty Casualty divisions.
Net written premiums in Specialty Casualty Group totaled $655 million, which advanced 4% year over year. The same at Specialty Financial and Other divisions rose 15% and 17%, respectively, year over year. Net written premiums at Property & Transportation Group increased 1% year over year.
Financial Update
American Financial exited the fourth quarter with cash and investments of $14.5 billion, which decreased 7.8% from the 2021-end level. As of Dec 31, 2022, long-term debt decreased 23.8% year over year at nearly $1.5 billion.
AFG’s book value per share (excluding unrealized gains/losses on fixed maturities) came in at $53.73. The figure decreased 6.4% from the figure at 2021 end. The company had around $1.41 billion of excess capital as of Dec 31, 2022.
Full-Year Highlights
For 2022, AFG’s core net operating earnings per share of $11.63 surpassed the Zacks Consensus Estimate of $11.60 by 0.2%. The bottom line increased 0.3% from the 2021-end level. Operating revenues for the year were $7.2 billion, which climbed 11.8% from the figure at 2021 end.
Core operating return on equity improved 260 bps year over year to 21.2%.
In 2022, American Financial bought back shares worth $11.3 million and distributed special dividends of $12.00 per share.
2023 Outlook Unveiled
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 to the $6.2 billion reported in 2022.
Prudent Capital Deployment
American Financial has declared a special cash dividend of $4 per share. The aggregate amount of this special dividend will be around $340 million. This special dividend is in addition to the regular quarterly cash dividend of 63 cents per share paid on Jan 25, 2023. American Financial declared cash dividends amounting to $2.63 per share in the fourth quarter. Included within the total cash dividends are a special dividend of $2 per share paid in November 2022. American Financial repurchased shares for $11.3 million in 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, American Financial has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 downward 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 is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Travelers (TRV), a stock from the same industry, has gained 0.8%. The company reported its results for the quarter ended December 2022 more than a month ago.
Travelers reported revenues of $9.63 billion in the last reported quarter, representing a year-over-year change of +7.6%. EPS of $3.40 for the same period compares with $5.20 a year ago.
Travelers is expected to post earnings of $3.75 per share for the current quarter, representing a year-over-year change of -11.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Travelers. Also, the stock has a VGM Score of C.
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American Financial Group, Inc. (AFG) : Free Stock Analysis Report
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