American Equity Investment Life Holding Company AEL has been consistently showing prowess pertaining to its annuity business with its fixed index annuity premiums experiencing improvement over time. Additionally, increase in annuity sales has contributed to a strong stable performance of this business. Hence, we expect to see the company experience better results in the near term.
Being a full service underwriter of a broad line of annuity and insurance products, the company has been catering to the various needs of its clients over the years through its robust product portfolio. Notably, the company has a favorable Value Score of A. Back-tested results have shown that stocks with an impressive Value Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 (Buy) become lucrative investment bets.
Moreover, the life insurer has been witnessing better policyholder funds under management over a considerable period of time that has helped the company deliver higher level of operating earnings. Riding on the strength of expanding gross sales volume, we anticipate seeing a probable rise in this metric in the near term.
The life insurer has been witnessing growth in its invested assets over the past few years, mainly backed by solid sales and strong retention levels. Further, American Equity is expected to realize additional benefit from the realignment of these assets in the future. Hence, this growth trajectory is anticipated to continue in the upcoming quarters, which in turn, will drive the company’s financial performance.
With gradual improvement in interest rates, the insurer has been able to witness robust investment income in the past few quarters. Apart from the slow and steady progress in interest rates, growth in invested assets plus a consistently sturdy performing annuity business is likely to aid investment results in the near term. Also, with the introduction of an investment realignment program during the second quarter of the current year, the life insurer is projected to witness a positive impact on its investment results in the upcoming quarters.
American Equity’s strong liquidity position has allowed it to enhance shareholder value through dividend hikes. The company’s dividend has grown 15.8% over the last decade. Additionally, the company has been seeing improvement in its risk-based capital ratio, reflecting its capital strength in turn.
The consensus mark for current-year earnings per share is pegged at $4.34, representing a year-over-year surge of nearly 37.3% on 7.9% improvement in revenues of $2.2 billion.
Shares of American Equity are trading at a price-to-book multiple of 1.24, lower than the industry average of 1.82. Price to book value ratio is the best multiple for valuing life insurers because of large variations in earnings results from one quarter to the next. This ratio essentially measures a life insurer’s current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are profitable picks.
Zacks Rank and Share Price Movement
Currently, the life insurer carries a Zacks Rank #2 (Buy). Shares of the company have rallied 11.1% year to date against the industry’s decline of 21.5%. We believe, the aforementioned positives will drive the stock higher in the near term.
Other Stocks That Warrant a Look
Investors interested in other top-ranked stocks from the same space can also consider Manulife Financial Corporation MFC, Primerica, Inc. PRI and Genworth Financial, Inc. GNW, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Manulife provides financial advice, insurance and wealth and asset management solutions for individuals, groups and institutions in Asia, Canada and the United States. The company delivered positive surprises in three of the trailing four reported quarters with average beat of 6.03%.
Primerica distributes financial products to middle income households in the United States and Canada. The company pulled off positive surprises in three of the previous four reported quarters with average positive surprise of 5.19%.
Genworth Financial provides insurance and homeownership solutions in the United States and internationally. The company surpassed estimates in the preceding four reported quarters with average earnings surprise of 76.99%.
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Primerica, Inc. (PRI) : Free Stock Analysis Report
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