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Why You Should Add American Equity (AEL) to Your Portfolio

Zacks Equity Research
·4 min read

American Equity Investment Life Holding Company AEL is well-poised for growth, riding on demographic change, product refreshes and solid capital position.

The Zacks Consensus Estimate for 2020 earnings has moved up 1.2% in the past 30 days, reflecting analysts’ optimism. Return on equity of 15.8% in the first quarter of 2020 was better than the industry average of 11.8%, reflecting the company’s efficiency in utilizing shareholders’ fund.  

The company’s target market includes individuals in the age group of 45-75, seeking to accumulate tax-deferred savings or create guaranteed lifetime income. Per the U.S. Census Bureau, Americans aged 65 and older will represent 20% of the total population by 2030 from 13% in 2010. Thus, being a premier fixed index annuity producer in the independent agent channel, American Equity is poised to benefit from this demography.

The company also remains focused on capitalizing on increasing popularity of index products.

To retain sustainability and adapt to changes, this Zacks Rank #2 (Buy) life insurer has been undergoing product re-fresh. The company targets the first such refresh this June with the introduction of first multi-asset index strategy.

The company identified liability-driven investing as a catalyst for success in this business. To that end, it remains focused on expanding asset classes and managing investment risk.

Further, its cash balance has increased over the last few years and its debt to capital ratio improved. Though its senior debt to capital ratio was 14 at first-quarter 2020 end, higher than the industry average of 13, times interest earned, identifying how efficiently the company can service debt, of 17.1% is higher than the industry average of 14.6%. The company exited the first quarter with $1.3 billion of liquidity and a pro forma 396 RBC ratio.

Since the company went public, it has increased dividend each year. Dividends witnessed a 17-year CAGR of 6.7%.   

The company has a stellar history of delivering positive earnings surprise in the last 14 reported quarters.

Shares of American Equity have lost 9.7% year to date compared with the industry's decrease of 22.5%. The stock carries an impressive Value Score of B. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 are best bets.

Other Stocks to Consider

Some other top-ranked companies in the insurance industry are National General Holdings Corp NGHC, Palomar Holdings, Inc. PLMR and The Allstate Corporation ALL.

National General, a specialty personal lines insurance holding company, provides various insurance products and services in the United States, Bermuda, Luxembourg and Sweden. Its earnings beat estimates in two of the last four quarters, the average positive surprise being 5.68%. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Palomar Holdings provides specialty property insurance. The company surpassed estimates in two of the last four quarters, the average positive surprise being 10.93%.The stock carries a Zacks Rank #2.

Allstate provides property and casualty, and other insurance products in the United States and Canada. The company surpassed estimates in each of the last four quarters, the average positive surprise being 18.45%.The stock carries a Zacks Rank #2.

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The Allstate Corporation (ALL) : Free Stock Analysis Report
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