Estimates for American Equity Investment Life Holding CompanyAEL have been revised upward over the past 60 days, reflecting analysts' confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being revised 3.5% upward to $3.55 and for 2019 earnings move 2.2% north to $3.72.
The company mainly offers a wide range of life insurance as well as annuity products and services while focusing on the sale of fixed rate and index annuities and carries a favorable VGM Score of B. Shares of this Zacks Rank #2 (Buy) life insurer have rallied nearly 21.7% year to date against the industry 's 14.6% decline.
American Equity's continued strong performance across global operations, solid performance at U.S. life insurance business and a robust capital position should continue to drive favorable results in the near term.
Let's focus on the factors that make American Equity a stock to retain for attractive returns.
Strong Annuity Business : American Equity has been consistently showing prowess pertaining to its annuity business with its fixed index annuity premiums experiencing improvement over time. Additionally, increase in annuity sales has contributed to the strong stable performance of this business. Hence, we expect to see the company experience better results in the near term.
Higher Net Investment Income : With gradual improvement in interest rates, the insurer has been able to witness higher investment income in the past few quarters and the momentum sustained in the first half of the current year as well. Apart from the slow and steady progress in interest rates, growth in invested assets plus a consistently strong performing annuity business is likely to aid investment results in the near term.
Moreover, with the introduction of an investment realignment program during the second quarter, the life insurer is anticipating a positive impact on its investment results in the upcoming quarters.
Growing Invested Assets : The life insurer has been witnessing increase in its invested assets over a considerable period of time and the momentum continued in the first half, mainly backed by higher sales and strong retention levels. We expect this growth trajectory to be sustained in the upcoming quarters, which in turn, will drive the company's financial performance.
Effective Capital Management : American Equity's strong liquidity position has allowed the insurer to enhance shareholder value through dividend hikes. The company's dividend has grown 15.8% over the last decade. Additionally, the company has been seeing improvement in its risk-based capital ratio, reflecting its capital strength in turn.
Growth Projections : The Zacks Consensus Estimate for current-year earnings per share is pegged at $3.55, representing a significant year-over-year increase of about 12.3% on 5.7% stronger revenues of $2.1 billion. For 2019, the bottom line per share is pegged at $3.72, translating into a year-over-year rise of 4.7% on 6.4% revenue growth of $2.2 billion.
Positive Earnings Surprise History : American Equity's surprise history depicts its diligent operational efficiency with the company having delivered positive surprises in all the last four quarters, the average beat being 22.24%.
Undervalued : Shares of American Equity are trading at a price-to-book multiple of 1.39, noticeably lower than the industry average of 3.50. Price to book value ratio is the best multiple for valuing life insurers because of large variations in their earnings results from one quarter to the next. This ratio essentially measures a life insurer's current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are lucrative bets. Moreover, the company carries an impressive Value Score of A.
Other Stocks to Consider
Investors interested in other top-ranked stocks from the insurance industry can also consider The Progressive Corporation PGR , NMI Holdings Inc. NMIH and The Navigators Group, Inc. NAVG , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Progressive Corporation provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance plus related services, primarily in the United States. The company delivered positive surprises in all the preceding four quarters with an average earnings surprise of 9.19%.
NMI Holdings provides private mortgage guaranty insurance services in the United States. The company pulled off positive surprises in all the trailing four quarters with an average positive surprise of 29.85%.
Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average beat of 19.54%.
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