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Why Is American Equity (AEL) Down 10.8% Since Last Earnings Report?

A month has gone by since the last earnings report for American Equity Investment (AEL). Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Equity due for a breakout? 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 Q2 Earnings Beat, Revenues Rise Y/Y

American Equity Investment Life Holding Company reported second-quarter 2022 adjusted net earnings of 98 cents per share, which beat the Zacks Consensus Estimate by 24%. The bottom line remained unchanged year over year.

The quarterly results reflected higher net investment income, offset by lower premiums and annuity product charges.

Operational Update

Operating total revenues were $660.8 million, up 14.4% year over year on the back of higher net investment income and other revenues.

Premiums and other considerations decreased 73.7% year over year to $3.8 million. Annuity product charges decreased 12.9% year over year to $55.5 million.

Net investment income increased 18.6% on a year-over-year basis to $592.3 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, and the increase in allocation to higher-yielding privately sourced assets to 16.6% of the investment portfolio.

Total benefits were $0.3 billion versus expenses of $1.1 billion in the year-ago quarter due to lower insurance policy benefits and changes in future policy benefits, interest-sensitive and index product benefits and other operating costs and expenses. The investment spread was 2.64%, up from 1.95% in the year-ago quarter.

Financial Update

Cash and cash equivalents were $1.3 billion as of Jun 30, 2022, down 71.4% from 2021-end. Total investments were about $54.5 billion, which decreased 9.7% from 2021-end. Notes payable totaled $ 496.5 million, marginally up 0.06% from 2021-end.

Book value per common share excluding AOCI was $50.68, up 24.2% from 2021-end. Total debt/total capitalization was 9.9%, improving 150 basis points from 2021-end. Operating return on equity excluding average AOCI was 11.9%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, American Equity has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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 belongs to the Zacks Insurance - Life Insurance industry. Another stock from the same industry, Reinsurance Group (RGA), has gained 0.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Reinsurance Group reported revenues of $4.14 billion in the last reported quarter, representing a year-over-year change of +2.9%. EPS of $5.78 for the same period compares with $4 a year ago.

For the current quarter, Reinsurance Group is expected to post earnings of $3.03 per share, indicating a change of +373% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.5% over the last 30 days.

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


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