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Why Is American Equity (AEL) Up 0.9% Since Last Earnings Report?

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  • AEL-PB

It has been about a month since the last earnings report for American Equity Investment (AEL). Shares have added about 0.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Equity due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

American Equity Q1 Earnings Miss, Revenues Beat Mark

American Equity Investment Life Holding Company (AEL) reported first-quarter 2021 adjusted net earnings of 43 cents per share, which missed the Zacks Consensus Estimate by 27.1%. The bottom line also decreased 74.2% on a year-over-year basis.

The company witnessed an increase in annuity sales, lower investment spread income and higher expenses during the quarter.

Operational Update

Operating total revenues were $497 million, down 13.3% year over year. The top line, however, beat the Zacks Consensus Estimate by 1.2%.

Premiums and other considerations increased 72.4% year over year to $13.2 million. Annuity product charges increased 0.8%, while net investment income declined 13.3% on a year-over-year basis. Gross annuity sales of $2.4 billion increased more than three-fold year over year. Sequentially, annuity sales were driven by increased gross annuity sales at Eagle Life (up 19%) and American Equity Life (up 46%).

Total benefits and expenses were $601 million versus negative $594 million a year ago due to higher insurance policy benefits, changes in future policy benefits, and interest sensitive and index product benefits along with amortization of deferred sales inducements, policy acquisition costs, and other operating costs and expenses. Investment spread was 2%, down from 2.64% in the year-ago quarter. Policyholder funds under management of $55.8 billion at quarter-end were up 3.2% from 2020-end.

Financial Update

Cash and cash equivalents were $11.1 billion on Mar 31, 2021, which increased 21.9% from 2020-end. Total investments were about $52.4 billion, which decreased 2.2% from 2020-end.

Notes payable totaled $495.8 million, marginally up 0.02% from 2020-end.
Book value per common share excluding AOCI was $39, up 8.4% from 2020-end. Total debt/total capitalization was 11.6%, improving 60 basis points from 2020-end. Operating return on equity excluding average AOCI was 8.54%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -20.26% due to these changes.

VGM Scores

Currently, American Equity has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise American Equity has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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