On Aug 26, we issued an updated research report on
American Financial Group, Inc.
). The insurer reported second-quarter 2014 operating earnings per
share of $1.07, beating the Zacks Consensus Estimate of 95 cents by
12.6%. On a year-over-year basis, earnings increased 11.5% buoyed
by higher contribution from the specialty property and casualty
group as well as earnings strength in the annuity segment.
The company's top line also showed an impressive growth of 22.2%
year over year, and easily surpassed the Zacks Consensus
American Financial is a niche player in the property and
casualty insurance market. The company has a very impressive
inorganic growth profile with active engagements in new startups,
small- to medium-sized acquisitions, and initiation of new
products. Over the past decade, the company has successfully made a
number of acquisitions and startups. The recent acquisition of
Summit Holdings Southeast Inc. is another strategic fit for the
company, enhancing its scale in specialty business.
American Financial is also witnessing a consistent price
increase in property and casualty business. Almost two-thirds of
the company's property and casualty businesses reported
pricing increases during the second quarter of 2014, resulting in
about a 3% overall renewal rate increase. This represents the
company's eleventh successive quarter of overall price
American Financial has managed to maintain a superior
underwriting outperformance. Over the past 10 years, the combined
operating ratio of the company's property and casualty business has
bettered the industry by nearly 10 points.
American Financial remains committed to create long-term value
for shareholders and has returned $1.6 billion of capital to
shareholders over five years through Dec 2013. It uses its
capital intelligently. Recently, the company used capital to
purchase Summit, launched the aviation division, purchased renewal
rights to expand its Public Sector Division and was involved in
regular share buyback and dividend payments.
Nonetheless, low interest rates, exposure to catastrophe and
pressure on annuity business in the second half of the year are
some of the headwinds.
American Financial carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the sector include Endurance Specialty Holdings Ltd. (
), Global Indemnity plc (
) and Mercury General Corporation (
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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