American Equity (AEL) Stock Is Up 7.3% Since Its Last Earnings Report: Can It Continue?

A month has passed since the last earnings report of American Equity Investment (AEL). Shares have risen about 7.3% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Equity headed for a decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

American Equity earnings for the fourth quarter, no revenues, y/y decline

American Equity reported fourth-quarter 2020 adjusted net earnings of 77 cents per share, missing the Zacks Consensus Estimate by 21.4%. The financial result decreased by 43.8% year-on-year.

The quarter saw lower investment spread income, an increase in other operating costs and expenses, and an increase in liabilities for future policy benefits that will be paid to lifetime income recipients. However, the decline in deferred acquisition cost and deferred amortization of the sales incentive partially offset this.

Operational update

Total operating revenues were $521.3 million, down 11.3% year-over-year. The top line missed the Zacks Consensus Estimate by 2.4%.

Premiums and other benefits increased by 16.2% year over year. Fees for annuity products increased by 4.2%, while net investment income decreased by 11.3%, all on a year-over-year basis.

Gross annuity sales of $1.8 billion doubled year over year. Consequently, annuity sales were driven by growth in gross annuity sales at Eagle Life (up 630%) and American Equity Life (up 103%).

Total benefits were $1 billion, an increase of 22.4% year-over-year.

The investment spread was 2.25%, compared to 2.77% in the same quarter last year.

Policyholder funds under management of $54.1 billion at the end of the quarter increased 2% compared to the end of the third quarter.

The most important events of the whole year

Adjusted net earnings of 75 cents per share missed the Zacks Consensus Estimate of 97 cents. The bottom line was down from year-ago earnings of $5.97 per share.

Total operating revenues were $2.5 billion, down 3.8% year-over-year. The top line surpassed the Zacks Consensus Estimate of $2.2 billion.

Financial update

Cash and cash equivalents were $9.1 billion at December 31, 2020, up from $2.3 billion at December 31, 2019. Total investments were approximately $53.6 billion, up from $56. $9 billion at the end of 2019.

Total bond liabilities were $495.7 million, a slight increase from $495.1 million at the end of 2019.

Book value per common share excluding AOCI was $35.99, an increase of 22.7% compared to the end of 2019.

At the end of 2020, total debt/total capitalization was 12.2%, an improvement of 550 basis points.

The operating return on equity net of average AOCI was 2.3%.

The estimated risk-based capital ratio was 372%, excluding approximately $300 million of excess cash in the holding company.

How have estimates changed since then?

Over the last month, investors have seen a downward trend in estimate revisions. As a result of these changes, the consensus estimate moved by -24.44%.

VGM results

At this point, American Equity’s average Growth Score is C, but its Momentum Score is performing slightly better at B. Plotting a somewhat similar path, the stock is rated an A on the value side, putting it in the top 20% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. No wonder American Equity has a Zacks Rank #4 (Sell). We expect a below-average rate of return on stocks in the coming months.

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