American Financial Up to Strong Buy on Solid Fundamentals - Analyst Blog

On Apr 4, Zacks Investment Research upgraded American Financial Group Inc.AFG by two notches to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The rank upgrade comes on the back of rising earnings estimates experienced by the stock Over the past 60 days, the Zacks Consensus Estimate for 2015 earnings has gone up by 0.5% to $5.33 per share, while that for 2016 registered a rise of 3% to $5.54 per share.

American Financial Group is a niche player in the property and casualty insurance market. The company has an impressive inorganic growth profile with active engagements in new startups, small- to medium-sized acquisitions, and product initiations. 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 that enhances the company's scale in specialty business.

American Financial is also witnessing consistent price increases in its property and casualty business. Almost two-thirds of this business reported pricing increases during the fourth quarter of 2014, resulting in about a 2% overall renewal rate increase. This represents the company's thirteenth successive quarter of overall price strengthening.

American Financial has managed to maintain a superior underwriting outperformance. The company's statutory combined ratio (signifying underwriting profitability; the lower the better) averaged 94.4% for the period 2012 to 2014 as compared to 98.7% for the property and casualty industry over the same period.

American Financial's astute management and focus on underwriting discipline are also reflected in its consistent earnings outperformance. The company delivered positive surprises in 26 out of the past 28 quarters. The average earnings beat for the last four quarters was 10%.

Last month, American Financial witnessed a rating action by the rating agency A.M. Best, wherein the ratings of all its property and casualty and annuity companies were affirmed with a stable outlook.

The rating affirmations of the units took into account the company's sturdy risk-adjusted capitalization and continued solid operational results reflecting strong underwriting performances at varied lines of business. The rating agency also acknowledged management in maintaining underwriting discipline which has kept its operations profitable.

Other stocks worth considering are Allied World Assurance Company Holdings, AG AWH , Berkshire Hathaway Inc. BRK.B and Heritage Insurance Holdings, Inc. HRTG . All these stocks sport the same Zacks Rank as American Financial.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AMER FINL GROUP (AFG): Free Stock Analysis Report

BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

HERITAGE INSUR (HRTG): Free Stock Analysis Report

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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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