RLI (NYSE:RLI) and American Financial Group (NYSE:AFG) are both mid-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, earnings, analyst recommendations, valuation, institutional ownership, dividends and risk.

Profitability

This table compares RLI and American Financial Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
RLI 13.11% 11.36% 3.13%
American Financial Group 9.45% 13.90% 1.14%

Analyst Ratings

This is a summary of current ratings and target prices for RLI and American Financial Group, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
RLI 1 3 0 0 1.75
American Financial Group 0 2 1 0 2.33

RLI currently has a consensus price target of $59.00, indicating a potential downside of 32.80%. American Financial Group has a consensus price target of $113.50, indicating a potential upside of 8.04%. Given American Financial Group’s stronger consensus rating and higher possible upside, analysts clearly believe American Financial Group is more favorable than RLI.

Earnings & Valuation

This table compares RLI and American Financial Group’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
RLI $818.12 million 4.78 $64.18 million $2.05 42.83
American Financial Group $7.15 billion 1.32 $530.00 million $8.40 12.51

American Financial Group has higher revenue and earnings than RLI. American Financial Group is trading at a lower price-to-earnings ratio than RLI, indicating that it is currently the more affordable of the two stocks.

Dividends

RLI pays an annual dividend of $0.92 per share and has a dividend yield of 1.0%. American Financial Group pays an annual dividend of $1.60 per share and has a dividend yield of 1.5%. RLI pays out 44.9% of its earnings in the form of a dividend. American Financial Group pays out 19.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. RLI has increased its dividend for 42 consecutive years and American Financial Group has increased its dividend for 13 consecutive years. American Financial Group is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider & Institutional Ownership

89.4% of RLI shares are held by institutional investors. Comparatively, 63.2% of American Financial Group shares are held by institutional investors. 5.0% of RLI shares are held by company insiders. Comparatively, 11.9% of American Financial Group shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Volatility and Risk

RLI has a beta of 0.79, indicating that its stock price is 21% less volatile than the S&P 500. Comparatively, American Financial Group has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500.

Summary

American Financial Group beats RLI on 11 of the 17 factors compared between the two stocks.

About RLI

RLI Corp., an insurance holding company, underwrites property and casualty insurance in the United States and internationally. Its Casualty segment provides commercial and personal coverage products; and general liability products, such as coverage for third-party liability of commercial insureds, including manufacturers, contractors, apartments, and mercantile. This segment also offers coverages for security guards and in the areas of onshore energy-related businesses and environmental liability for underground storage tanks, contractors and asbestos, and environmental remediation specialists; and professional liability coverages focuses on providing errors and omission coverage to small to medium-sized design, technical, computer, and miscellaneous professionals. In addition, this segment provides commercial automobile liability and physical damage insurance to local, intermediate and long haul truckers, public transportation entities, and equipment dealers; incidental and related insurance coverages; inland marine coverages; management liability coverages, such as directors and officers liability insurance, fiduciary liability and fidelity coverages, and for low to moderate classes of risks, including public and private businesses; and healthcare liability and home business insurance products. The company's Property segment offers commercial property, cargo, hull, protection and indemnity, marine liability, inland marine, homeowners' and dwelling fire, and other property insurance products. Its Surety segment offers small bonds for businesses and individuals; bonds for small to medium-sized contractors; commercial surety bonds for medium-to-large businesses; and commercial surety bonds for the energy, petrochemical, and refining industries. The company also underwrites various reinsurance coverages. The company markets its products through branch offices and independent agents. RLI Corp. was founded in 1965 and is headquartered in Peoria, Illinois.

About American Financial Group

American Financial Group, Inc., an insurance holding company, provides property and casualty insurance products in the United States. The company operates through three segments: Property and Casualty Insurance, Annuity, and Other. It offers property and transportation insurance products, such as physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products, and other property; specialty casualty insurance, including primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, and specialty coverage in targeted markets, as well as customized programs for small to mid-sized businesses and workers' compensation insurance; and specialty financial insurance products comprising risk management insurance programs for leasing and financing institutions, surety and fidelity products, and trade credit insurance. The company sells its property and casualty insurance products through independent insurance agents and brokers, as well as through employee agents. It also provides traditional fixed, fixed-indexed, and variable-indexed annuities to the retail, financial institutions, registered investment advisor, and education markets; and engages in the commercial real estate operations in Cincinnati, Whitefield, New Hampshire, Chesapeake Bay, Charleston, and Palm Beach. American Financial Group, Inc. was founded in 1872 and is headquartered in Cincinnati, Ohio.

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