Citi maintains neutral stance on American Financial shares By Investing.com

On Friday, Citi reiterated its Neutral rating on American Financial Group (NYSE:), with a steady price target of $137.00. The firm’s stance follows a previous downgrade from Buy to Neutral in late June, prompted by concerns over workers’ compensation trends.

Recent July data on the Consumer Price Index (CPI) and Producer Price Index (PPI) indicated a slight slowdown in inflation for key workers’ compensation sub-indices. Despite this, Citi maintains a cautious view on the risk/reward balance concerning workers’ compensation pricing versus medical inflation dynamics.

The report acknowledges American Financial Group’s proactive measures in response to the challenging underwriting landscape. The company’s aggressive underwriting actions and the acceleration in casualty pricing have bolstered confidence in its capacity to manage the current conditions effectively.

This sentiment is supported by historical performance, noting that American Financial’s casualty pricing exceeded that of its peers when the market last peaked between late 2020 and early 2021.

Additionally, Citi highlights American Financial’s strategic growth in its mortgage loan portfolio, which has expanded by more than 20% year-to-date. While this sector of the business remains relatively small, it is projected to contribute an additional 1-2% to the company’s earnings per share (EPS) by 2025, assuming yields are as favorable as management indicated in early-year discussions.

In light of these factors, Citi has adjusted its EPS forecasts for American Financial Group. The firm’s revised estimates show a 2% increase for 2024 and 2025, while projections for 2026 remain unchanged.

These changes reflect the company’s second-quarter earnings beat, anticipated stronger property and transportation (P&T) earnings in the fourth quarter of 2024 and the first quarter of 2025, along with increased net investment income.

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