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Should You Retain American Equity (AEL) in Your Portfolio?

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American Equity Investment Life Holding (AEL - Free Report) is well-poised for growth, driven by higher average fees, increased average invested assets, strategic partnerships and effective capital deployment.

Growth Projections

The Zacks Consensus Estimate for American Equity’s 2022 earnings per share is pegged at $4.96, indicating growth of 52.1% from the year-ago reported figure.

Estimate Revision

Estimates for 2022 have moved up nearly 5.7% in the past 60 days, reflecting investors’ optimism.

Earnings Surprise History

American Equity has a decent earnings surprise history. It beat estimates in two of the last four quarters and missed the same in the other two, with the average beat being 31.49%.

Zacks Rank & Price Performance

American Equity currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 38.2% against the industry’s decline of 5.9%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Driving Factors

Annuity product charges, one of the key drivers of American Equity’s top line, are expected to improve due to higher fees assessed for lifetime income benefit riders, an increase in average fees and higher surrender charges. AEL expects to grow fixed index annuity product sales beyond $6 billion in 2022.

Considering the growth in the average yield earned on average invested assets as well as an increase in average invested assets, net investment income is expected to improve amid the current low-interest rate environment.

Higher premiums and other considerations, increased annuity product charges as well as improved net investment income are likely to boost the top line of the life insurer. The Zacks Consensus Estimate for American Equity’s 2022 revenues is pegged at $2.15 billion, indicating a year-over-year increase of 6.3%.

American Equity remains focused on making partnerships, which are expected to free up capital to return to shareholders and redeploy into higher-yielding alpha-generating assets. Also, these are likely to raise third-party capital for reinsurance vehicles to provide risk capital to back a portion of existing liabilities and future sales of annuity products.

In November 2021, AEL partnered with Monroe and invested an amount of $1 billion in Monroe Capital’s Software, Technology and Recurring Revenue investment strategy. In September 2021, American Equity agreed to partner with BlackRock and Conning.

American Equity boasts a strong balance sheet with an improvement in leverage. It continues to hold cash above target levels of 2% of invested assets. Debt to capital of 8.3% was better than the industry average of 10.1%.

Based on operational excellence, American Equity’s dividend payouts have witnessed a CAGR of 8.5% in the past 10 years (2012-2021). Currently, AEL has $236 million remaining under its share repurchase authorization.

Stocks to Consider

Some better-ranked stocks from the insurance space are Brighthouse Financial (BHF - Free Report) , Voya Financial (VOYA - Free Report) and First American Financial (FAF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brighthouse Financial’s earnings surpassed The Zacks Consensus Estimate in each of the last four quarters, the average beat being 67.61%. In the past year, Brighthouse Financial has surged 45.9%. The Zacks Consensus Estimate for BHF’s 2022 earnings has moved 0.6% north in the past 60 days.

In the past year, Voya Financial has rallied 15.4%. The Zacks Consensus Estimate for Voya Financial’s 2022 earnings has moved 0.1% north in the past 60 days. VOYA’s earnings surpassed estimates in two of the last four quarters and missed the same in the other two, the average beat being 9.68%.

First American’s earnings surpassed The Zacks Consensus Estimate in each of the last four quarters, the average beat being 29.19%. In the past year, First American has rallied 47%. The Zacks Consensus Estimate for FAF’s 2022 earnings has moved 0.4% north in the past 30 days.