Why Is American Equity Investment a Strong Sell? - Analyst Blog

On May 29, Zacks Investment Research downgraded American Equity Investment Life Holding Co. 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 Corp. LNC, Protective Life Corp. PL, and Sun Life Financial Inc. SLF. All these carry a Zacks Rank #2 (Buy).