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American Financial's Acquisitions & Capital Position Impress

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We issued an updated research report on American Financial Group, Inc.AFG on Aug 12, 2015.

Last month, the company reported second-quarter 2015 earnings that surpassed the Zacks Consensus Estimate by 5.8%. Notably, the company has delivered positive earnings surprises in all the last four quarters with an average beat of 9.49%.

The company has been actively involved in startups, small-to-medium sized acquisitions, and launch of products over the past decade. During this period, the company has successfully closed 11 acquisitions and startups. These transactions testify to the company's excellent use of excess capital. Furthermore, aided by its recent acquisitions, American Financial is expected to achieve double-digit returns on capital in specialty and casualty business, and witness immediate earnings accretion.

With the second quarter of 2015, American Financial marked the 15th consecutive quarter of overall price strengthening. Along with price increase, loss cost trends continue to be stable and appear relatively benign across all the property and casualty businesses. Such positive trends offer the company a favorable environment for long-term growth.

American Financial has traditionally maintained moderate adjusted financial leverage of around low 20%, with good cash flow and interest coverage ratio. Alongside, the company recently announced the 9th consecutive hike in annual dividend, reflecting its strong financial position. The company expects to continue increasing its excess capital through 2015, courtesy the divestiture of its Run-off Long-Term Care Insurance business to HC2 Holdings, Inc. This sale is projected to generate $110 million in excess capital.

However, low interest rates continue to be a headwind for American Financial, which in turn, can hurt the company's net investment income through low yields. Moreover, the company's earnings have been traditionally impacted by catastrophes. Irrespective of catastrophe-mitigation techniques deployed by the company, exposure to weather-related calamities renders its earnings volatile.

American Financial currently holds a Zacks Rank #2 (Buy). Investors interested in the property and casualty insurance space may consider stocks like Hallmark Financial Services Inc. HALL , Selective Insurance Group Inc. SIGI and First American Financial Corporation FAF . All three stocks sport a Zacks Rank #1 (Strong Buy).

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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

FIRST AMER FINL (FAF): Free Stock Analysis Report

HALLMARK FINL (HALL): Free Stock Analysis Report

AMER FINL GROUP (AFG): Free Stock Analysis Report

SELECT INS GRP (SIGI): 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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