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Why You Must Add American Financial (AFG) to Your Portfolio

American Financial Group, Inc. AFG is poised for growth, given better pricing, improving rate environment, strong operational performance and a solid capital management. This Zacks Rank #1 (Strong Buy) property and casualty insurer remains promising, banking on several growth prospects.

Growth Projections: The Zacks Consensus Estimate for 2018 earnings per share is pegged at $8.20 while the same for 2019 stands at $8.62, translating to a respective 2.2% and 5.1% year-over-year increase.

American Financial has expected long-term earnings per share growth of 12.1%, exceeding the industry average of 11.3%.

Impressive Price Performance: Shares of American Financial have rallied 25.5% in a year, outperforming the industry’s growth of 18% and higher than the S&P 500 index’s 19.1% gain.


Upward Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year and 2019 earnings being revised 7.6% and 27.7% upward, respectively, over the last 30 days.

Solid Positive Earnings Surprise History: American Financial has surpassed the Zacks Consensus Estimate in the last five quarters with an average beat of 25.49%.

Growth Drivers in Place

American Financial is a niche player in the property and casualty and annuity markets. Strategic initiatives coupled with a solid operational performance have helped the insurer generate solid premium growth. Management expects Specialty P&C net premiums written to grow in the range of 3-7% in 2018.

Improvement in pricing has also been driving the company’s premiums. American Financial intends to maintain satisfactory rates in P&C renewal pricing, increasing 1-3% in 2018.

American Financial is actively involved in startups, small-to-medium sized acquisitions and product launches. Its inorganic growth story is impressive.

Its combined ratio has been better than the industry average and it estimates the metric between 92% and 94% for 2018.

Improving net investment income over the last few quarters raises optimism. Given the gradually improving interest rate environment, the company expects investment income to grow 4-6% in 2018.

A strong capital position aids the company to return value to shareholders through dividend hikes and buybacks. While the company announced a 12% dividend raise in August 2017, it also paid special dividends twice in the full year. The company also has 4.1 million shares remaining under its authorization. Five-year total annualized shareholder return representing growth in share price plus dividends was about 27%, exceeding the total return performance of the S&P 500 index.

Other Stocks to Consider

Investors interested in the insurance industry can also look at NMI Holdings Inc. NMIH, Infinity Property and Casualty Corporation IPCC and Donegal Group Inc. DGICA.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with an 85.1% earnings surprise last quarter. Shares of the company have soared 56.3% in a year. The stock sports a Zacks Rank of 1. You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

Infinity Property and Casualty provides personal automobile insurance products in the United States. Last quarter, the company delivered an earnings surprise of 262.25%. Shares of the company have surged 40.5% in a year. The stock carries a Zacks Rank #2 (Buy).

Donegal Group provides property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England and Southern states. The company pulled off a 10.72% earnings surprise in the preceding quarter. Shares of the company have gained 3.2% in a year. The stock carries a Zacks Rank of 2.

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Donegal Group, Inc. (DGICA): Free Stock Analysis Report
American Financial Group, Inc. (AFG): Free Stock Analysis Report
Infinity Property and Casualty Corporation (IPCC): Free Stock Analysis Report
NMI Holdings Inc (NMIH): Free Stock Analysis Report
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