American Financial Group, Inc. AFG remains well-poised for growth, banking on better pricing, solid capital management and improving industry fundamentals. The Zacks Rank #3 (Hold) property and casualty bears holds immense potential owing to a few good growth drivers.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $6.05 for 2017 and $6.75 for 2018. Though the consensus mark for 2017 reflects a year-over-year increase of 0.3%, the same for 2018 improved 11.6%.

The expected long-term earnings growth is pegged at 5.8%.

Northbound Estimates: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 1.9% upward over the last 30 days.

Price Performance: Shares of American Financial have rallied 16.3% year to date, outperforming the industry’s gain of 12.6%.

Positive Earnings Surprise History: American Financial has surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 23.54%.

Growth Drivers in Place

American Financial is a niche player in the property and casualty, and annuity markets. Strategic initiatives coupled with 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 2017.

Improvement in pricing has also been driving the company’s premiums. American Financial intends to maintain satisfactory rates in P&C renewal pricing between flat and an increase of 1% going forward.

American Financial’s inorganic growth remains impressive with strategic buyouts. The company is prudently investing in business it is knowledgeable about.

Its combined ratio has been better than the industry average and it estimates the metric between 94% and 95% for 2017.

The company has been witnessing increasing net investment income over the last few quarters. Given the gradually improving interest rate environment, the company expects investment income to grow 4-6% in 2017.

A strong capital position aids the company to return value to shareholders through dividend hikes and buybacks. While the company announced 12% dividend raise in August, it paid two special dividends with about 4.1 million shares remaining under its authorization as of Sep 30, 2017.

Stocks to Consider

Some better-ranked stocks from the insurance industry are and 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 a 42.86% earnings surprise in the last quarter. Shares of the company have surged 56.3% year to date. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see 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 1050%. Shares of the company have rallied 23.5% year to date. 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 78.57% earnings surprise in the preceding quarter. Shares of the company have gained 0.7% year to date. The stock carries a Zacks Rank of 2.

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Donegal Group, Inc. (DGICA): Free Stock Analysis Report
 
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