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American Equity (AEL) Up 21% in a Year: More Room to Run?

·4 min read

Shares of American Equity Investment Life Holding AEL have rallied 21.3% in a year against the  industry’s  decrease of 12.4% as well as the Finance sector’s and the Zacks S&P 500 composite’s decline of 12.5% and 12.5%, respectively in the same time frame. With a market capitalization of $3.5 billion, the average volume of shares traded in the last three months was about 0.9 million.

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

AEL has a decent track record of beating estimates in two of the last four quarters with the average surprise being 42.60%.

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.

Can AEL Retain the Momentum?

The Zacks Consensus Estimate for American Equity’s 2022 earnings is pegged at $3.91, indicating an increase of 0.3% from the year-ago reported figure on 10.2% higher revenues of $2.3 billion. The consensus mark for 2023 earnings stands at $5.01, suggesting growth of 27.9% year over year on 2.1% higher revenues of $2.3 billion.

AEL has a compelling portfolio of fixed index and fixed rate annuity products guaranteeing principal protection, competitive rates of credited interest, tax-deferred growth, lifetime income and alternative payout options. With Americans aged 65 and older set to represent 20% of the total population by 2030 from 13% in 2010 per the U.S. Census Bureau, American Equity is poised to benefit from this demography.

This leader in the development and sale of fixed index and fixed rate annuity products expects to grow fixed index annuity product sales beyond $6 billion in 2022. This apart, the premier fixed index annuity producer in the independent agent channel 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. It expects about one-third of new business flow to convert into ROA business through growth in reinsured liabilities. AEL expects the mix of fee revenues to support a higher-return business profile.

AEL remains focused on strengthening its balance sheet by improving its cash balance and leverage ratio.

AEL has hiked dividends each year since 2003 when it went public. It has increased dividends at a 19-year CAGR of 42.8% and targets $700 million worth of share buybacks in 2022.

American Equity has an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.

Stocks to Consider

Some better-ranked stocks from the multi-line insurance industry are James River Group Holdings, Ltd. JRVR, American International Group, Inc. AIG and MGIC Investment Corporation MTG. While James River Group sports a Zacks Rank #1 (Strong Buy), American International and MGIC Investment carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for James River Group’s 2022 and 2023 earnings implies 136% and 13.1% year-over-year growth, respectively.

The Zacks Consensus Estimate for JRVR’s 2022 and 2023 earnings has moved 15.1% and 4.9% north, respectively, in the past 60 days.  In the past year, the insurer has declined 32.1%.

American International’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 18.9%. In the past year, AIG stock has rallied 8.3%.

The Zacks Consensus Estimate for American International’s 2022 and 2023 earnings implies 1.2% and 21.2% year-over-year growth, respectively.

MGIC Investment’s earnings surpassed estimates in each of the last four quarters, the average beat being 10.9%. In the past year, MTG has declined 8.9%.

The Zacks Consensus Estimate for MTG’s 2022 and 2023 earnings has moved 1.8% and 3.2% north, respectively, in the past 60 days.


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American International Group, Inc. (AIG) : Free Stock Analysis Report
 
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