Why Is American Equity (AEL) Up 9.4% Since Last Earnings Report?

It has been about a month since the last earnings report for American Equity Investment (AEL). Shares have added about 9.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.

American Equity Q1 Earnings Miss, Revenues Rise Y/Y

American Equity Investment reported first-quarter 2022 adjusted net earnings of 92 cents per share, which missed the Zacks Consensus Estimate by 3.1%. The bottom line however increased two-fold on a year-over-year basis.

American Equity witnessed higher net investment income, offset by lower premiums and annuity product charges.

Operational Update

Operating total revenues were $638.4 million, up 11.9% year over year on the back of higher net investment income and other revenues.

Premiums and other considerations decreased 23.7% year over year to $10.1 million. Annuity product charges decreased 12.9%.

Net investment income increased 14.1% on a year-over-year basis to $567.4 million. The upside was due to a higher average yield on investments, resulting from strong returns from partnerships and other mark-to-market assets, lower cash balances as well as an increase in allocation to higher yielding privately sourced assets.

Total benefits and expenses were negative $573.5 million versus $600.9 million a year ago due to lower insurance policy benefits and change in future policy benefits, interest-sensitive and index product benefits and interest expense on subordinated debentures.

The investment spread was 2.51%, up from 2% in the year-ago quarter.

Financial Update

Cash and cash equivalents was $1.9 billion on Mar 31, 2022, which decreased 57.1% from 2021-end. Total investments were about $58.5 billion, which decreased 3% from 2021-end.

Notes payable totaled $496.4 million, marginally up 0.03% from 2021-end.

Book value per common share excluding AOCI was $46.38, up 13.7% from 2021-end.

Total debt/total capitalization was 10.2%, improving 120 basis points from 2021-end.

Operating return on equity excluding average AOCI was 11.8%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -8.89% due to these changes.

VGM Scores

Currently, American Equity has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. Notably, American Equity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

American Equity is part of the Zacks Insurance - Life Insurance industry. Over the past month, Voya Financial (VOYA), a stock from the same industry, has gained 5.9%. The company reported its results for the quarter ended March 2022 more than a month ago.

Voya reported revenues of $266 million in the last reported quarter, representing a year-over-year change of -22.7%. EPS of $1.47 for the same period compares with $1.03 a year ago.

For the current quarter, Voya is expected to post earnings of $1.49 per share, indicating a change of -32.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.9% over the last 30 days.

Voya has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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