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BMO adjusts American Financial stock target, remains cautious on Property segment

EditorAhmed Abdulazez Abdulkadir
Published 15/11/2024, 13:44
AFG
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On Friday, BMO Capital Markets adjusted its price target for American Financial Group (NYSE:AFG), increasing it to $143.00 from the previous target of $135.00. The firm has chosen to maintain its Market Perform rating on the stock.

The adjustment comes after an evaluation of American Financial's financial outlook, which remains unchanged through 2026. This assessment takes into account revisions to net investment income, which are balanced by an anticipated increase in the underlying loss ratio for future third quarters. The company has highlighted to investors the seasonal nature of its crop profits, which is factored into these projections.

For the fourth quarter of 2024, BMO's estimate stands approximately 15% below the consensus, attributed to a higher underlying loss ratio in the Property & Transportation segment of American Financial. The estimated underlying loss ratio for this period is 71.3%, which is nearly 40 basis points below the full-year estimate of 71.7%. This figure aligns closely with the company's historical fourth-quarter seasonality, which averages around a 30-basis point difference.

The firm's outlook indicates a cautious stance on American Financial's near-term performance, particularly in light of the expected increase in loss ratios. This is a key metric that reflects the percentage of premiums paid out in claims and operating expenses, and is a crucial indicator of profitability for insurance companies.

American Financial Group, headquartered in Cincinnati, Ohio, is a holding company engaged through its subsidiaries in property and casualty insurance, focusing on specialized commercial products for businesses.

In other recent news, American Financial Group has announced its third-quarter earnings for 2024. The company's leadership, including Co-CEOs Carl Lindner III and Craig Lindner, and CFO Brian Hertzman, discussed the financial results and future outlook during a conference call. While no specific bullish or bearish highlights were mentioned, the company emphasized the potential risks and uncertainties associated with forward-looking statements.

In addition, the company provided a reconciliation of net earnings to core net operating earnings, a non-GAAP measure, which is essential for understanding its ongoing financial health. The detailed materials related to these earnings are available online in the Investor Relations section of the American Financial Group's website.

InvestingPro Insights

American Financial Group's (NYSE:AFG) recent price target adjustment by BMO Capital Markets aligns with several key financial metrics and trends highlighted by InvestingPro. The company's market cap stands at $11.92 billion, reflecting its significant presence in the specialized commercial insurance sector.

InvestingPro data shows that AFG's P/E ratio (adjusted) for the last twelve months as of Q3 2024 is 13.05, suggesting a relatively moderate valuation compared to its earnings. This is particularly noteworthy given that the company is trading near its 52-week high, with its current price at 98.07% of that peak.

One InvestingPro Tip indicates that AFG "pays a significant dividend to shareholders," which is supported by the impressive dividend yield of 7.03% and a dividend growth rate of 13.85% over the last twelve months. This aligns with another tip stating that AFG "has maintained dividend payments for 39 consecutive years," highlighting the company's commitment to shareholder returns.

The revenue growth of 8.28% over the last twelve months and 10.84% in Q3 2024 (quarterly) demonstrates AFG's ability to expand its business, which may contribute to the positive outlook reflected in the increased price target.

However, it's worth noting that AFG is "trading at a high P/E ratio relative to near-term earnings growth," as pointed out by another InvestingPro Tip. This could explain BMO's cautious "Market Perform" rating, despite the price target increase.

For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into AFG's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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