What's Behind the Bearish Analyst Sentiment on American Equity Investment Life (AEL)?

American Equity Investment Life may be undervalued with strong growth indicators, but the 9 analysts following the company give it an rating of hold. Their target prices range from $40.0 to $50.0 per share, for an average of $44.56. At today's price of $38.31, American Equity Investment Life is trading -14.03% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

American Equity Investment Life Holding Company, through its subsidiaries, provides life insurance products in the United States. Based in West Des Moines, IA, the mid-cap Finance company has 840 full time employees. American Equity Investment Life has provided a 0.9% dividend yield over the last 12 months.

American Equity Investment Life has a trailing twelve month P/E ratio of 9.5, compared to an average of 14.34 for the Finance sector. Based on its EPS guidance of 6.58, the company has a forward P/E ratio of 5.8.

The average compound growth rate of the company's historical and projected earnings per share is 19.7%. On this basis, the company's PEG ratio is 0.47, which suggests that its shares are underpriced.

Furthermore, the market is potentially undervaluing American Equity Investment Life in terms of its book value because its P/B ratio is 1.14. In comparison, the sector average P/B ratio is 1.57. The company's shares are currently -34.5% below their Graham number, indicating that its shares have a margin of safety.

So why are analysts giving AEL a bad rating? We believe analysts could be alarmed by the company's disappointing -12.0% rate of cash flow growth over the last 4 years. You can see for yourself in the financial summary table below, where we also note a significant increase in the company's debt:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $2,012 $3,713 $4,048 $3,766
Interest Income -$1,328,865 -$1,574,379 -$2,712,311 -$592,300
Net Margins 12.23% 18.08% 11.71% 50.98%
Net Income (MM) $246 $671 $474 $1,920
Depreciation & Amort. -$4,068 -$5,199 -$5,527 -$14,185
Earnings Per Share $2.68 $6.9 $4.55 $4.03
EPS Growth n/a 157.46% -34.06% -11.43%
Diluted Shares (MM) 92 92 94 78
Free Cash Flow (MM) $3,347 $1,292 $4,215 $2,003
Capital Expenditures (MM) -$4 -$13 -$18 -$41
Long Term Debt (MM) $652 $574 $575 $871
Net Debt / EBITDA -1.04 -3.56 -1.18 -0.35
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.