On Feb 26, 2014, Zacks Investment Research upgraded American Financial Group Inc. (AFG) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Following a strong fourth-quarter 2013 performance, American Financial witnessed upward estimate revisions. Over the past 30 days, the Zacks Consensus Estimate for 2014 moved north by 2.6% to $4.71 per share as 2 of 4 estimates were revised upward. For 2015, the same moved up by 6.2% to $5.24 per share as 1 among 5 estimates moved the positive direction over the same time frame.
This property and casualty insurer delivered positive surprise in 3 of the last 4 quarters with an average of 9.3%. The expected long term growth rate for the stock is 8%.
American Financial reported fourth-quarter operating earnings per share of $1.28, which comfortably beat the Zacks Consensus Estimate by 4.1%. On a year-over-year basis earnings surged 91%. The earnings beat came on the back of record earnings from the company’s Annuity segment and significantly higher underwriting profitability in its Specialty Property and Casualty insurance operations.
Total revenue of $1.36 billion increased 12.7% year over year, while also easily outpacing the Zacks Consensus Estimate of $0.89 billion.
American Financial exhibited a strong performance in 2013 benefiting from improving industry trends. A benign catastrophe year along with increasing insurance pricing led to overall earnings growth. The company’s combined ratio which has trended lower than the industry standards is also commendable.
Going ahead, American Financial's bottom line should benefit from the recent acquisition of Summit Holdings, which will expand its workers’ compensation business. Improving insurance rates, low loss cost ratio, strong balance sheet, low leverage and a disciplined capital management will further aid the company results going forward.
Other Stocks to Consider
Other insurers which sport the same Zacks Rank as American Financial and are worth considering include AmTrust Financial Services, Inc. (AFSI), EMC Insurance Group Inc. (EMCI) and Global Indemnity plc (GBLI).
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