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UPDATE: Evercore ISI Downgrades American Equity Investment Life Holding (AEL) to In Line

August 15, 2022 4:18 AM EDT
Get Alerts AEL Hot Sheet
Price: $37.29 +1.19%

Rating Summary:
    4 Buy, 10 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 10 | Down: 4 | New: 31
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(Updated - August 15, 2022 4:19 AM EDT)

Evercore ISI analyst Thomas Gallagher downgraded American Equity Investment Life Holding (NYSE: AEL) from Outperform to In Line with a price target of $44.00 (from $42.00).

The analyst comments "We downgrade shares of AEL from Outperform to In Line, as after the recent pop in the shares coming out of 2Q earnings we think the valuation is full at ~13x P/FCF. We acknowledge the GAAP earnings outlook has improved in light of the benefit of higher rates on NII yields and the ~13% qtd move higher in equities likely accelerates index credit generation, and this is what has driven the recent strength in the shares. However, the outlook for cash flow generation is little changed which we think is the more significant valuation driver, and we suspect the use of third party capital and additional in-force reinsurance deals to accelerate the mix shift from spread to fee based earnings and grow cash flow will take longer to play out than we initially anticipated. We think a 13x P/FCF valuation is pretty full given the current macro backdrop, specifically 1) if we enter into a recession we think credit losses among the life insurers will start to emerge, and we see AEL as one of the most at risk life insurers in this regard given its peer-high asset leverage (despite the recent in-force re transactions) with above average risk in the portfolio; 2) recent market volatility likely pressures statutory capital generation over the near-to-intermediate term, both on adverse developments on the FIA benefit reserves and to a lesser extent some negative impact to the CARVM allowance."

For an analyst ratings summary and ratings history on American Equity Investment Life Holding click here. For more ratings news on American Equity Investment Life Holding click here.

Shares of American Equity Investment Life Holding closed at $42.29 yesterday.


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