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6 Reasons to Add American Financial Stock to Your Portfolio

Estimates for American Financial Group, Inc . AFG have been revised upward over the past 30 days, reflecting analysts' confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being raised 0.8% to $8.58.

This provider of property and casualty insurance with focus on specialized commercial products for businesses carries a favorable Value Score of A. Shares of this Zacks Rank #2 (Buy) insurer have gained 5.9% year to date compared with the industry 's 5.1% increase. Back tested results have shown that stocks with an impressive Value Score of A or B coupled with a bullish Zacks Rank #1 (Strong Buy) and (2) offer the best investment bets.

American Financial is a niche player in the P&C space and the annuity markets. It is poised to benefit from improved pricing, higher renewal ratio and better industry fundamentals. For 2018, the company projects operating earnings between $8.10 and $8.60 per share. The view has been upped from $7.90-$8.40, expected earlier.

Let's focus on the factors that make American Financial a stock to hold in your portfolio for attractive returns.

Improving Top Line : American Financial's rising revenues are attributable to higher net premiums earned (primarily driven by increasing property and casualty insurance premiums) as well as investment income.

Management expects Specialty P&C net premiums written to grow 4-8% in 2018 from 3-7%, predicted earlier. It also projects property and casualty investment income to increase 10-13% in 2018, up from 4-6%, guided earlier.

Better Pricing : American Financial has been witnessing pricing increase in property and casualty business. The company intends to maintain satisfactory rates in P&C renewal pricing going forward. Management estimates Property and Casualty renewal pricing in 2018 to inch up 1-2%.

Effective Capital Management : American Financial has a strong capital management policy in place and returning excess capital to shareholders through dividends is a key component of the company's capital deployment strategy. With a recent 14% hike, its dividend witnessed a five-year CAGR of 12.5%. The same also marks the 13th straight raise. Its dividend yield of 1.41% betters the industry average of 0.5%. Besides regular dividend hike, the company pays a special dividend, which further makes the stock an attractive pick for yield-seeking investors.

Additionally, the company has about 4.1 million shares remaining under its authorization.

Return on Equity : American Financial's return on equity stands at 13.3%, much above its industry average of 5.9%. Return on equity underscores profitability, identifying how the company is effectively utilizing its shareholders' money.

Growth Projections : The Zacks Consensus Estimate for current-year earnings per share is pegged at $8.58, representing year-over-year growth of 40% and for 2019, the consensus mark for the bottom line stands at $8.63, translating into a 0.6% year-over-year rise.

American Financial has an expected long-term earnings per share growth rate of 12.3%, better than the industry average of 11.7%.

Positive Earnings Surprise History : The company flaunts a stellar earnings surprise history, exceeding the Zacks Consensus Estimate in the last 10 consecutive quarters. This outperformance in turn, underlines the company's operational efficiency. The average 10-quarter positive earnings surprise is 22.96%.

Other Stocks to Consider

Investors interested in property and casualty industry can also check out a few other top-ranked stocks like Arch Capital Group Ltd. ACGL , RLI Corp. RLI and Berkshire Hathaway Inc. BRK.B , each sharing the same bullish Zacks Rank of 2 with American Financial. You can see the complete list of today's Zacks #1 Rank stocks here .

Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. It delivered a 13.46% positive surprise in the earlier reported quarter.

RLI Corp. underwrites property and casualty insurance in the United States and internationally. Last reported quarter, it pulled off a 9.09% earnings surprise.

Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. It came up with a 22.91% beat in the previously reported quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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