American Financial Group Inc Valuation – August 2018 $AFG

Company Profile (excerpt from Reuters): American Financial Group, Inc. (AFG), incorporated on July 1, 1997, is a holding company engaged primarily in property and casualty insurance businesses. The Company, through Great American Insurance Group, focuses on commercial products for businesses, and is engaged in the sale of fixed and fixed-indexed annuities in the retail, financial institutions and education markets. The Company has four segments: Property and casualty insurance, Annuity, Run-off long-term care and life, and Other. As of December 31, 2016, AFG’s property and casualty operations provided a range of commercial coverages through over 30 insurance businesses. AFG’s property and casualty insurance operations allow local decision-making for underwriting, claims and policy servicing.

AFG Chart

AFG data by YCharts


Downloadable PDF version of this valuation:

ModernGraham Valuation of AFG – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,122,488,779 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 69.91% Pass
5. Moderate PEmg Ratio PEmg < 20 17.62 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.97 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $6.40
MG Growth Estimate 5.06%
MG Value $119.10
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $92.76
MG Value based on 0% Growth $54.38
Market Implied Growth Rate 4.56%
Current Price $112.69
% of Intrinsic Value 94.62%

American Financial Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.78 in 2014 to an estimated $6.4 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.56% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into American Financial Group Inc revealed the company was trading above its Graham Number of $104.25. The company pays a dividend of $1.29 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 17.62, which was below the industry average of 36.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Financial Group Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $104.25
PEmg 17.62
PB Ratio 1.97
Dividend Yield 1.14%
TTM Dividend $1.29
Number of Consecutive Years of Dividend Growth 12

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $1,301,000,000
Total Assets $60,656,000,000
Intangible Assets $199,000,000
Total Liabilities $55,473,000,000
Shares Outstanding (Diluted Average) 90,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.00
Dec2017 $5.28
Dec2016 $7.33
Dec2015 $3.94
Dec2014 $4.97
Dec2013 $5.16
Dec2012 $5.09
Dec2011 $3.32
Dec2010 $4.36
Dec2009 $4.45
Dec2008 $1.67
Dec2007 $3.10
Dec2006 $3.75
Dec2005 $1.75
Dec2004 $3.21
Dec2003 $2.75
Dec2002 $0.82
Dec2001 -$0.15
Dec2000 -$0.63
Dec1999 $1.57
Dec1998 $1.33

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.40
Dec2017 $5.51
Dec2016 $5.52
Dec2015 $4.57
Dec2014 $4.78
Dec2013 $4.62
Dec2012 $4.16
Dec2011 $3.59
Dec2010 $3.64
Dec2009 $3.17
Dec2008 $2.58
Dec2007 $2.99
Dec2006 $2.78
Dec2005 $2.09
Dec2004 $1.91
Dec2003 $1.13
Dec2002 $0.41

Recommended Reading:

Other ModernGraham posts about the company

American Financial Group Inc Valuation – January 2017 $AFG
American Financial Group Inc Valuation – August 2016 $AFG
15 Best Stocks For Value Investors This Week – 2/13/16
American Financial Group Inc Valuation – February 2016 $AFG
12 Best Stocks For Value Investors This Week – 11/7/15

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Chubb Ltd Valuation – June 2018 $CB
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Berkshire Hathaway Inc Valuation – May 2018 $BRK-B


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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