AFG American Financial Group

American Financial Group Inc. (AFG) has put together an impressive 17 straight quarters of positive earnings surprises, averaging a beat of 12.5%. Most recently, this property and casualty insurer surprised by 39% in its third quarter. The quarterly announcement also included the declaration of a special dividend. Additionally, with a price-to-book (P/B) ratio of just 0.78, this Zacks Rank # 1 (Strong Buy) is a true value pick.

Rank Drivers

Based on its progress to accommodate the expected pre-tax loss from Hurricane Sandy, the company narrowed its earnings per share projection for 2012 to between $3.10 and $3.30 from $3.10 to $3.50 earlier. The Zacks Consensus Estimate for 2012 is currently pegged at $3.27, near the high end of the company’s guidance range.

American Financial declared a special dividend of 25 cents per share on December 7, in addition to an 11.4% hike in its regular quarterly dividend on October 1.

The company also has 4.5 million shares remaining under its buyback authorization and expects total share repurchased for 2012 to be approximately $450 million.

On October 29, American Financial reported third quarter earnings of 82 cents per share, which was 39% above the Zacks Consensus Estimate. The upside was largely due to higher income in the Annuity and Supplemental Insurance Group. However, the earnings result fell short of last year.

Operating revenue was $1.5 billion, which outpaced the Zacks Consensus Estimate by 47% and the year-ago number by 0.2% on higher property and casualty premium and investment income.

American Financial has not yet announced its fourth-quarter earnings release date. The Zacks Consensus Estimate is 67 cents on revenues of $795 million.

Positive Earnings Estimate Revisions

For 2013, the Zacks Consensus Estimate increased 1.1% to $3.71 over the last 60 days, suggesting a year-over-year increase of 13.3%.

Attractive Valuation

Along with a very attractive P/B multiple, American Financial has a price-to-earnings (P/E) ratio of 11.1 (a P/B ratio under 3.0 and P/E ratio below 15.0 indicate value).

Meanwhile, the company has a 1-year return on equity (ROE) of 7.5%, lower than its peer group average of 8.1%.

Based in Cincinnati, Ohio, and founded in 1872, American Financial Group provides property and casualty insurance, in addition to engaging in sale of conventional fixed and fixed-indexed annuities in the education, bank and individual markets in the United States. With a market cap of $3.71 billion, the company competes with CNA Financial Corporation (can), MetLife Inc. (MET) and The Travelers Companies Inc. (TRV), among others.

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