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American Equity Rallies 40% in a Year: What Aids the Stock?

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American Equity Investment Life Holding Company’s AEL share price rally makes the stock an investor favorite. Shares of the company have soared nearly 41.9% in a year, outperforming its industry's rise of just 1.8%. With a market capitalization of $3.2 billion, average volume of shares traded in the last three months were 0.6 million.


What’s Behind the Upside?

American Equity Investment delivered a positive earnings surprise in the last four quarters with an average beat of 24.4%.

The company stays focused on growing invested assets and policyholder funds under management, delivering sturdy operating earnings on the burgeoning asset base through investment spread and lowering impairment loss in investment portfolio.

The insurer’s efforts to strengthen its portfolio reaped returns. The company is well-poised for growth, banking on increasing income on guaranteed income products, introducing a new lifetime income benefit rider for Foundation Gold fixed indexed annuity, reintroducing a popular no-fee version of the rider with Foundation Gold and introduction of the Income Shield Series.

Lower tax rate due to the overhaul in tax policy, which slashed the tax rate to 21% from 35%, lent an additional boost to the bottom line.

American Equity Investment’s return on equity — a measure of profitability — is 11.2%, better than the industry average of 9.8%. This reflects the company’s prudent usage of its shareholders’ funds.

The company is concentrating on improving investment yield by replacing lower-yielding securities with higher-yielding ones.

Management remains optimistic about enhanced sales going forward, given a solid sale momentum in the last couple of quarters. On account of investment made with higher rates, management expects declining investment yields, which weighed on results for more than eight years, to likely reverse in the latter part of 2018.

Considering American Equity Investment’s significance as player in the fixed index annuity industry, the company remains well-positioned for growth with a compelling portfolio as customers look for indexed annuities to build retirement savings with a guarantee of returns ensuring low volatility.

American Equity Investment carries a Zacks Rank #2 (Buy). With optimism surrounding the stock’s healthy performance, the Zacks Consensus Estimate for 2018 and 2019 has been revised about 0.9% and 1.1% upward, respectively, in the last 30 days.

The consensus mark for earnings and revenues translates into a year-over-year improvement for both 2018 and 2019.

Other Stocks to Consider

Investors interested in other top-ranked property and casualty stocks can also check out GWG Holdings, Inc GWGH, Kemper Corporation KMPR and Cigna Corp. CI.

GWG Holdings purchases life insurance policies in the secondary market in the United States. It came up with an average four-quarter beat of 195.14%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kemper provides property and casualty, and life and health insurance to individuals and businesses in the United States. It pulled off an average four-quarter beat of 121.61%. The stock has a Zacks Rank of 1.

Cigna provides insurance and related products and services in the United States as well as internationally. It delivered an average four-quarter beat of 15.74%. The stock has a Zacks Rank of 2.

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