Here's Why You Should Hold American Equity (AEL) Stock for Now
American Equity Investment Life Holding’s AEL focus on expansion into new verticals, the increasing popularity of index products in the market, a solid balance sheet and effective capital deployment make it worth retaining in one’s portfolio.
Zacks Rank & Price Performance
AEL currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 14.7% compared with the industry’s growth of 10.7%.
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Return on Equity (ROE)
AEL has been effectively improving its ROE over the years. ROE in the trailing 12 months of 12.8% expanded 558 basis points year over year and was better than the industry’s average of 12.4%. This reflects the insurer’s efficiency in utilizing shareholders’ funds.
Style Score
American Equity has a VGM Score of A. This style score helps identify stocks with the most attractive value, best growth, and most promising momentum.
Rising Estimates
The Zacks Consensus Estimate for AEL’s 2023 earnings is pegged at $6.10 per share, indicating a 66.2% increase from the year-ago reported figure. The consensus estimate for 2024 earnings is pegged at $6.50, indicating a 6.5% increase from the year-ago reported figure.
The company beat earnings estimates in three of the last four quarters, missed once, the average surprise being 13%.
Business Tailwinds
Net Investment income contributed a major portion to American Equity’s revenues in the first quarter of 2023. Life insurers are direct beneficiaries of an improving interest rate environment. The majority of American Equity’s income is derived from its investment spread. Thus, AEL is poised to benefit from an improving interest rate environment.
Per the U.S. Census Bureau, Americans aged 65 and older will represent 20% of the total population by 2030. With a compelling portfolio of fixed index and fixed rate annuity products guaranteeing principal protection, competitive rates of credited interest, tax-deferred growth, guaranteed lifetime income and alternative payout options, AEL is poised to benefit from this demography.
This leader in the development and sale of fixed index and fixed rate annuity products is expanding into middle-market credit, real estate, infrastructure debt and agricultural loans. This should fuel fixed index annuity product sales in the coming years.
The execution of the AEL 2.0 strategy remains on track. The company has partnered with best-in-class asset managers to help it expand to sectors like commercial real estate, residential real estate, etc. Thus, the insurer believes this strategy will help it remain afloat in a recessionary environment.
AEL has been strengthening its balance sheet by improving its cash balance and leverage ratio. Banking on operational strength, AEL has been hiking dividends each year since 2003 when it went public. Its dividend increased at a 20-year CAGR (2003-2022) of 19.6%. The company repurchased 7.3 million shares in the first quarter of 2023. As of Mar 31, 2023, the company had $276 million remaining under authorization.
Key Concerns
There is a factor that investors should keep a careful eye on.
This life insurer has been experiencing an increase in expenses driven by higher amortization of deferred sales inducements, interest expense on notes and loans payable, interest expense on subordinated debentures and other operating costs and expenses.Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Stocks to Consider
Some better-ranked stocks from the broader Finance space are Assurant, Inc. AIZ, Enact Holdings, Inc. ACT and Old Republic International Corporation ORI. Each of these companies currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant’s bottom line outpaced estimates in three of the trailing four quarters and missed once. The average earnings surprise is 18.2%.
The Zacks Consensus Estimate for AIZ’s 2023 earnings indicates a 25% rise, while the same for revenues suggests 2.7% growth from the prior-year reported figures.
The bottom line of Enact Holdings outpaced the Zacks Consensus Estimate in three of the last four quarters and missed on the other occasion, the average surprise being 28.6%.
The consensus mark for ACT’s 2023 earnings has moved 8.9% north in the past 60 days.
Old Republic’s bottom line outpaced estimates in each of the trailing four quarters. The average earnings surprise is 29.9%.
The consensus mark for ORI’s 2023 earnings has moved 9.1% north in the past 60 days.
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Assurant, Inc. (AIZ) : Free Stock Analysis Report
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Enact Holdings, Inc. (ACT) : Free Stock Analysis Report
