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American Equity (AEL) Up 17% in a Year: More Upside Left?

Shares of American Equity Investment Life Holding AEL have rallied 16.9% in a year against the industry’s decrease of 17.4%. The Finance sector and the Zacks S&P 500 composite declined 11.8% and 13.2%, respectively, in the same time frame. With a market capitalization of $3.3 billion, the average volume of shares traded in the last three months was about 0.5 million.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

A compelling product portfolio, increasing popularity of index products in the market, focus on expansion into new verticals, solid balance sheet and effective capital continue to drive this Zacks Rank #3 (Hold) leader in the development and sale of fixed index and fixed rate annuity products.

AEL has a decent track record of beating earnings estimates in two of the last four quarters while missing in the other two quarters, with the average beat being 27.39%.

Can AEL Retain the Momentum?

The Zacks Consensus Estimate for 2022 and 2023 has moved 5.7% and 3.2% north in the past 30 days, reflecting analyst optimism.

Per the U.S. Census Bureau, Americans aged 65 and older will represent 20% of the total population by 2030 from 13% in 2010. A compelling portfolio of fixed index and fixed rate annuity products guarantying principal protection coupled with competitive rates of credited interest, tax-deferred growth, guaranteed lifetime income and alternative payout options poise American Equity well to benefit from this demography.

AEL estimates fixed index annuity product sales beyond $6 billion in 2022 and remains focused on expanding into middle market credit, real estate, infrastructure debt and agricultural loans.

American Equity has been working diligently toward executing its AEL 2.0 strategy. AEL expects around one-third of new business flow to convert into ROA business through growth in reinsured liabilities. Thus, the insurer believes its mix of fee revenues will support a higher-return business profile.

American Equity has been strengthening its balance sheet by improving its cash balance and leverage ratio. AEL has hiked dividends each year since 2003 when it went public. Its dividend increased at a 19-year CAGR (2012-2021) of 42.8%. The company targets $700 million worth of share buybacks in 2022.

AEL generated an average operating return on equity of 15% over the past years. The life insurer targets ROE between 11% and 14% over the next few years and above 15% on average over the long term.

The Zacks Consensus Estimate for American Equity’s 2023 earnings suggests growth of 36.8% year over year.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Arch Capital Group Ltd. ACGL, American Financial Group, Inc. AFG and ProAssurance Corporation PRA, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Arch Capital surpassed earnings estimates in three of the last four quarters and missed in one, the average being 33.64%. Year to date, the insurer has rallied 4.6%.

The Zacks Consensus Estimate for Arch Capital’s 2022 and 2023 earnings has moved 5.7% and 4.9% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.09%. Year to date, American Financial has lost 4.1%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 3.1% and 3.3% north, respectively, in the past 30 days.

The bottom line of ProAssurance surpassed earnings estimates in three of the last four quarters and missed in one, the average being 150.9%. Year to date, the insurer has lost 12.7%.

The Zacks Consensus Estimate for ProAssurance’s 2022 and 2023 earnings has moved 25.9% and 13.9% north, respectively, in the past 30 days.


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