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Citi cuts American Financial stock to neutral, lowers target

EditorAhmed Abdulazez Abdulkadir
Published 06/28/2024, 08:04 PM
AFG
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On Friday, Citi made a significant adjustment to its stance on American Financial Group , Inc. (NYSE:AFG), downgrading the stock from Buy to Neutral and reducing the price target to $137 from the previous $144. This revision comes as the firm takes into account the potential impact of new legislation on the company's workers' compensation business.

American Financial Group, which generates approximately 44% of its workers' compensation premium in California and Florida, is facing new regulatory changes. In Florida, the company is notably the second-largest writer of workers' compensation through its Summit business. Recent legislative developments in the state are poised to affect the company's cost structure.

Governor Ron DeSantis of Florida has signed SB 362, a bill that will significantly increase the maximum reimbursement rates for physicians and surgeries associated with workers' compensation claims. Starting in January 2025, the reimbursement for physicians will rise to 175% of the Medicare rate, and for surgeries, it will increase to 210%. These new rates present a stark increase from the current levels of 110% and 140% for physicians and surgeries, respectively.

The financial implications of these changes for American Financial Group are yet to be fully realized, but the new legislation could potentially lead to higher costs for the company. The adjustments in Citi's rating and price target reflect a cautious approach to these upcoming regulatory shifts and their possible impact on the company's profitability.

In other recent news, American Financial Group (AFG) reported a notable 8% year-over-year increase in net written premiums for the first quarter of 2024. AFG's focus on its Specialty Property & Casualty Insurance businesses resulted in a strong combined ratio of 90.1% and an impressive annualized operating return on equity of 20%. Despite challenges in its alternative investment portfolio and multifamily housing investments, the company returned a substantial $269 million to shareholders through dividends and share repurchases.

In addition, AFG announced the promotion of JD (NASDAQ:JD) Rogers (NYSE:ROG) to the position of Vice President & Chief Information Security Officer. Rogers, who has been with the company since 2008, has led the Enterprise Information Security Group since its establishment in 2013.

In analyst news, Piper Sandler adjusted its price target for American Financial, raising it to $135 from $129, while maintaining a Neutral rating. Piper Sandler noted that the company's recent financial outcomes surpassed consensus expectations primarily due to investment income.

Lastly, a study by SeoProfy revealed a lack of customer loyalty among Fortune 500 companies. American Family Insurance Group emerged as a leader in customer loyalty with a net promoter score (NPS) of 78%, despite a $1.9 billion loss last year. These are recent developments in the financial and business world.

InvestingPro Insights

In light of the recent changes in American Financial Group's regulatory landscape, it is beneficial to consider additional insights. According to InvestingPro data, the company boasts a strong market capitalization of $10.42 billion and a Price/Earnings (P/E) ratio of 11.65 as of the last twelve months leading up to Q1 2024. This robust P/E ratio, however, is juxtaposed with a Gross Profit Margin of 20.09%, which indicates some pressure on profitability. In terms of performance, the company has experienced a revenue growth of 10.35% over the last twelve months, signaling a healthy expansion despite regulatory challenges.

InvestingPro Tips highlight that American Financial Group has maintained dividend payments for an impressive 39 consecutive years, demonstrating a commitment to shareholder returns. Additionally, the company's liquid assets surpass its short-term obligations, providing financial flexibility. For investors considering the long-term view, it is worth noting that analysts predict profitability for the company this year, and the firm has been profitable over the last twelve months. Moreover, the company has delivered a high return over the last decade, reinforcing its track record of performance.

For a deeper analysis and more InvestingPro Tips, investors can visit https://www.investing.com/pro/AFG. There are 5 additional tips available that may further inform investment decisions. To access these insights, use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

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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