Analysts covering American Financial Group Inc (NYSE:AFG) are predicting the earnings to drop -17.9% in years’ time. What are the important facts you need to know? Today I’m going research the future of this stock in more detail. See our latest analysis for AFG
What can we expect from AFG in the future?
I’m afraid we have to share with you concerning news regarding American Financial Group’s earnings next year. Analysts covering the company are expecting the EPS to drop down to $7.1, a significant decline from previous levels of $8.06. Based on the estimates this means a reduction of -17.9%.This means earnings will be above what has been seen in the past few years.
In the same period we will see the revenue dip from $6.44 Billion M to $4.86 Billion M in 2019 and net income is predicted to decline from $701 Million to $570 Million in 2019, during this period margins are on track to be a respectable 11.7% .
Is there any basis for growth?American Financial Group has grown its earnings faster than the Insurance industry average over the past year.
With Return on Equity of 14.2% American Financial Group has performed better than the Insurance industry average of 10.59%, whilst shareholders would consider this acceptable no doubt they are hoping for an improvement in the coming years. Slightly concerning, this metric is not expected to improve with analysts predicting ROE in 3 years to be 9.5%.
Return on equity (ROE) is a measure of how much profit (net income) a company makes as a percentage of the shareholders equity. Equity is made up of funds from the original issuing of shares and any retained earnings from previous financial years. It varies considerably across sectors, for this reason it is important to asses a stocks ROE relative to its industry. Whilst it is true that the higher the ROE the better the company is performing, ROE does have a weakness. A stock with a disproportionate amount of debt can lead to a small equity base. Thus, a small amount of net income (the numerator) could still produce a high ROE off a modest equity base (the denominator). For this reason investors should always consider the debt situation in conjunction with ROE.
American Financial Group may have a few turbulent years in front of it but despite (or maybe because of) that it could still be offering an interesting investment opportunity. I recommend you see our latest FREE analysis to find out!
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