OneMain, American Financial Group downgraded at Piper Sandler (NYSE:OMF)

Piper Sandler is feeling neutral on American financials.

Piper analysts dropped their ratings to Neutral from Overweight on OneMain Holdings (NYSE:OMF) and American Financial Group (NYSE:AFG).

OneMain dropped 3.5% on Thursday and American Financial Group fell 2.5%.

OneMain’s price target was also lowered to $49 from $55 as the bank has been dealing with rising credit losses for the past several quarters.

“We expected the company to show progressive improvement in 2023 due to tighter underwriting standards,” analysts Kevin Barker and Brad Capuzzi wrote in a note. “The incremental progress being shown in early 2023 reversed course in late 2023 and we are more concerned about the performance of the front book with management indicating they have tightened even more.”

A Neutral rating is appropriate until more tangible evidence is presented showing credit performance is improving, Piper said.

American Financial Group (AFG) kept its price target of $129 even as it faces a “high-class problem,” the analysts Paul Newsome and Andrew Lambrecht wrote in a note.

“Its ROE is probably near its cyclical peak and earnings growth will be limited as calendar underwriting margins are likely [to] be to stable into the future,” the team said.

“Competition has increased incrementally in the specialty commercial insurance sector. For the past year our companies in this sector have reported incrementally slower top-line growth. The years where specialty commercial insurance prices – including excess & surplus lines – were much higher than standard commercial lines prices seem to be well past us.”

The bank’s 2024 guidance also backs Piper’s view of limited future earnings growth with the forecast of $11 a share in earnings versus the $10.56 of operating earnings reported last year.

“There is an uncomfortable trend of missing earnings expectations in the past four quarters. AFG has missed earnings expectations in the past four quarters,” Piper said. “The theme has been generally the same with lower-than-expected workers’ compensation margins as well as often higher than expected catastrophe losses and other items.”