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Why Is American Equity Investment A Strong Sell?

ByZacks Investment Research
Published 05/30/2014, 08:05 AM
Updated 07/09/2023, 06:31 AM

On May 29, Zacks Investment Research downgraded American Equity Investment Life (NYSE:AEL) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

American Equity Investment has witnessed sharp downward estimate revisions after reporting dismal first-quarter 2014 results. Shares of this life insurer have also been on a downtrend following a weak quarterly performance.

On Apr 30, American Equity Investment reported first-quarter earnings per share of 48 cents, missing the year-ago earnings by a cent, though in line with the Zacks Consensus Estimate. The company reported a loss of 13 cents per share in the first quarter, comparing unfavorably with 38 cents earned in the prior-year quarter.

The Zacks Consensus Estimate thus witnessed downward revisions for 2014 and 2015. It declined 4.4% to $1.97 for 2014 as three out of four estimates moved south in the last 30 days and decreased 9.6% year over year. For 2015, the Zacks Consensus Estimate slumped 8.5% to $2.25 as all the estimates were revised lower.

The top line witnessed a sharp fall of 40.2% to $445 5 million due to lower premiums and other considerations that dropped 44% year over year.

Interest expense increased 43% due to the issuance of $400 million notes. The interest coverage ratio of 1.86 compares unfavorably with the industry average of 21.83.

While cash from operations in the reported quarter plunged 87% year over year, cash balance at quarter end dropped 24% from the 2013-end level.

Other Stocks to Consider

Though we prefer to avoid American Equity at present, life insurers worth considering include Lincoln National Corporation (NYSE:LNC), Protective Life Corporation (NYSE:PL) and Sun Life Financial Inc. (NYSE:SLF). All these carry a Zacks Rank #2 (Buy).

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