05-29-2018: American Equity Investment LIfe Holding Co. (AEL): Merger Rumors

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Recommendation

American Equity Investment LIfe Holding Co.

Few things are more disappointing to us when reviewing a stock than to see it rocket upward during the review process before we can render a recommendation. Worse, when that "rocket" is due to rumors of the corporation being acquired in a merger, the stock loses interest rapidly. We are "in it" for the long term, and it appears American Equity Investment Life Holding Corp. (a holding company with a very long name) (AEL) won't be around much longer as a stock. Management confirmed in recent news items that it is "in discussions" but refused to indentify the potential bidder. Likely sources are Athene Holding Ltd. and FGL Holdings. There seems a potential that the stock share price could crash back down to previous trading range levels if the deal doesn't go through. As its stock share price rises, the company becomes less attractive to bidders.

At any rate, AEL has a strong balance sheet and Zenith Index. Of concern to researchers is the earnings growth rate potential. The stock seems fairly priced based upon assets.

Institutions are net sellers, although Dimensional Fund Advisors is among prime holders, which we regard as a positive, and it is acquiring.

AEL is a life insurance company but its prime products are annuities. From what we can tell, these are typical of what is offered by other firms offering annuities that track market averages in determining payouts. Zenith favors annuities offered by Allianz Group, a German company rather than those typically offered by American companies.

Our Decision Matrix "buy" rating is supported by recent stock chart activity which is thrown all off normal action by the merger rumors and has gapped up. There is however, a charting dictum which counsels, "Gaps must be filled," assuming share price will return to fill them. That will almost certainly happen if a deal doesn't go through, but it looks like it will. Should that happen, and the stock chart price has that look about it because it has stabilized at a new level, Zenith will remove the stock from its active list because volatility will cease.

One thing we found interesting was that Standard & Poor's put this stock at its highest buy rating while Market Grader was hesitant and gave a list of similar corporations which it thought had higher potential. We may be looking at one of those in the near future if we can get some consensus agreement upon which one.



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Under current market conditions, a Zenith Index Score of 1.20 or above is required for a positive rating on this factor. 1.21 -1.30 is considered acceptable, 1.30-1.40 is considered strong and
> 1.40 is considered exceptionally strong. Accounting statements in this section often contain mistakes, especially in earlier years' totals, but data is deemed sufficient for us to give a rating. More accurate financial statements follow in the next section.

American Equity Investment Life Holding Company (AEL)     Exchange: NYSE
6000 Westown Parkway
West Des Moines, IA 50266        Sector: Financial Services
United States                    Industry:Insurance - Life

American Equity Investment Life Holding Company, through its
subsidiaries, provides life insurance products and services in the
United States. The company issues fixed index and rate annuities; and
single premium immediate annuities, as well as life insurance products.
The company markets its products through various distribution channels,
including national marketing organizations, broker/dealers, banks, and
registered investment advisors. American Equity Investment Life Holding
Company was founded in 1995 and is based in West Des Moines, Iowa.

Last Trade:  34.93                           52-Week Range:  35.79 -  23.02
Employees: 515                               Avg.Volume:     542,654 Shares

Corporate Governance:
Pillar scores are Audit: 2; Board: 4; Shareholder Rights: 2; Compensation: 6.
         (A lower number means less governance risk.)

EPS:  1.93    Dividend Amount: $ 0.26          Yield:  0.84%
             Ex-Dividend Date: Nov 28, 2017    Payout Ratio:  13.47

Key Statistics:

    Trailing P/E:  17.97              Forward P/E (est.):   9.47
                                           Target Price:  33.73

Qrtly Stock Price Growth (yoy):  41.30%               Beta:   2.62
Qrtly S&P Index   Growth (yoy):  99.70%        Short Ratio:   0.00%
    Qrtly Revenue Growth (yoy):  13.68%         Shares Out:  90100000
   Qrtly Earnings Growth (yoy):   0.00%

          Book Value:  31.91                    Debt/Equity:  25.87%
    Price/Book Value:   1.09        Operating Profit Margin:   9.70%
         Price/Sales:   0.80                  Profit Margin:   4.47%
         Market Cap:   3,124,000,000       Return on Equity:   6.79%
    Enterprise Value:   2,010,000,000      Return on Assets:   0.40%

    Operating Cash Flow:  1,920,000,000
         Free Cash Flow:  2,910,000,000



Annual Income Statement:                          (All numbers in thousands)
  Period Ending                             12/31/2017  12/31/2016  12/31/2015

  Total Revenue                              3,891,652   2,220,282   1,518,937
  Cost of Revenue                            2,066,887     777,955   1,013,511
  Gross Profit                               1,824,765   1,442,327     505,426

Operating Expenses:
  Research & Development                             0           0           0
  Selling, General & Administrative                  0           0           0
  Non-Recurring Expenses                             0           0           0
  Other Operating Expenses                     544,267     727,409     591,722
  Total Operating Expenses                           0           0           0

Operating Income or Loss                       316,271     130,247     337,314

Income from Continuing Operations:
  Total Other Income/Expenses Net             -938,552    -543,465     464,698
  Earnings Before Interest & Taxes             360,763     171,453     378,402
  Interest Expense                              44,492      41,206      41,088
  Income Before Taxes                          316,271     130,247     337,314
  Income Tax Expense                           141,626      47,004     117,484
  Minority Interest                                  0           0           0

Net Income from Continuing Op.s                174,645      83,243     219,830

Non-recurring Events:
  Discontinued Operations                            0           0           0
  Extraordinary Items                                0           0           0
  Effect of Accounting Changes                       0           0           0
  Other Items                                        0           0           0
  Net Income                                   174,645      83,243     219,830
  Preferred Stock & Other Adjustments                0           0           0

Net Income Avail to Common Shares              174,645      83,243     219,830



Annual Cash Flow Statement:                   (All numbers in thousands)
  Period Ending                         12/31/2017    12/31/2016    12/31/2015

  Net Income                               174,645        83,243       219,830

Operating Activities:
  Depreciation                             451,955       630,127       491,650
  Adjustments to Net Income              1,808,806     1,351,725       490,627
  Changes in Accounts Recv'bls             -31,235       -35,669       -35,545
  Changes in Liabilities                   -61,791       -59,502        11,772
  Changes in Investories                         0             0             0
  Changes in other Oper'g Acts            -419,987      -555,602      -673,530

Total Cash Flow f Operations             1,922,393     1,414,322       504,804

Investing Activities:
  Capital Exenditures                       -4,809        -1,197        -1,313
  Investments                           -2,587,127    -4,497,848    -5,575,892
  Other Cash Flows fr Investing                  0             0             0

Total Cash Flows from Investing         -2,591,936    -4,499,045    -5,577,205

Financing Activities:
  Dividends Paid                           -23,148       -21,110       -17,874
  Sale of Purchase of Stock                 14,028       139,654       112,465
  Net Borrowings                           -14,739       120,045       -53,879
  Other Cash Flows fr Financing          1,336,181     3,239,651             0

Total Cash Flows from Financing          1,312,322     3,478,240     4,768,636

  Effect of Exchange Rate Chg                    0             0             0

Change in Cash & Cash Equiv.               642,779       393,517      -303,765



Annual Balance Sheets:                              (All Numbers in Thousands)
  Period Ending                          12/31/2017    12/31/2016    12/31/2015
Current Assets:
  Cash & Cash Equivalents                 1,434,045       791,266       397,749
  Short Term Investments                          0             0             0
  Net Receivables                                 0        11,474        29,599
  Inventory                                       0             0             0
  Other Current Assets                            0             0             0
  Total Current Assets                    1,434,045       802,740       427,348

  Long-Term Investments                  50,729,712    45,155,340    39,932,436
  Property, Plant & Equipt                        0             0             0
  Goodwill                                        0             0             0
  Intangible Assets                               0             0             0
  Accumulated Amortization                        0             0             0
  Other Assets                            7,114,308     7,021,436     5,531,789
  Deferred LT Asset Charges               2,752,670     3,073,955     3,137,819

Total Assets                             62,030,736    56,053,472    49,029,392

Current Liabilities:
  Accounts Payable                           34,285             0             0
  Current Portion LT Debt                         0             0             0
  Other Current Liabilities                       0             0             0
  Total Current Liabilities                  34,285             0              0

  Long Term Debt                             34,285             0             0
  Other Liabilities                               0             0             0
  Deferred LT Liab. Charges                       0             0             0
  Minority Interest                               0             0             0
  Negative Goodwill                               0             0             0

Total Liabilities                        59,180,580    53,761,876    47,084,856

Stockholder Equity:
  Misc. Options, Warrants                         0             0             0
  Redeemable Preferred Stock                      0             0             0
  Preferred Stock                                 0             0             0
  Common Stock                               89,331        88,001        81,354
  Retained Earnings                       1,244,781     1,093,284     1,031,151
  Treasury Stock                                  0             0             0
  Capital Surplus                           791,446       770,344       630,367
  Other Stockhohlder Equity                 724,599       339,966       201,663
  Total Stockholder Equity                2,850,157     2,291,595     1,944,535

Net Tangible Assets                       2,850,157     2,291,595     1,944,535


American Equity Investment Life Holding Co. [Indices near +3.0, near zero,
                                            or < zero bear special attention.]
P/E Ratio Tests:
P/E Ratio < 28?            1.5582          P/E Ratio > 5?             1.0000
P/E Ratio Vs Growth Rate:  0.0000          Forward P/E Ratio < 28?    2.9567
Price/Sales Ratio < 2.3?   2.8750          Inventory/Sales < 5%?      1.0000
Sales < $1 Billion?        0.2570          Operating Margin < 7.5%?   0.7732

Balance Sheet Tests:
Debt/Equity < 0.40?        1.5462          Long-Term Debt Service:    3.0000
LTD Being Reduced?        -3.0000          Short-Term Debt Service:   3.0000
Current Ratio > 2?         3.0000          Working Capital >= 1.5?    0.0363
Leverage Ratio < 20%?      0.3893          Debt/Assets < 1?           3.0000
Quick Ratio > 1?           3.0000          Inventory Turnover > 1?    1.0000
Share Equity Increase:     2.4222          Market Cap.< 1.5 Billion?  0.4802
                                           Intangibles < 3% Assets?   3.0000
Income Tests:
Profit Margin < 7.5%?      0.5960          EPS Annual Growth > 10%?   0.0477
Dividend Yield > 2.0%?     2.3810          EPS 3-yr Growth > 15?      0.1888
Enterprise Value/Revenue   0.8026          EPS Growth Consistent?     0.0000
Enterprise Value/EBITDA:   3.0000          Collection < 45 days?      1.0000
EPS Qrtly Growth > 10%?    0.0000          Gross Pft/Cur. LTD > 1?    3.0000
                                           Borrowing Int. Rate < 6%?  0.9934
Stock Performance Tests:
Volatility > 25%?          1.4272          % Held by Insiders < 5%?   1.4793
Beta > 1.25?               2.0960          % Held by Institut. < 50?  0.5204
50 Da MA > 200 Da MA?     -0.1031          % Held by Institut. > 30?  3.0000
52-Wk Change vs. S&P 500:  3.0000          Short Ratio > 5?           0.0000
Price/Book Value < 3?      2.7406          Short % of Float > 20?     0.0000
Return on Assets > 17%?    0.0235          Average Volume > 100,000?  3.0000

Cash Flow Tests:
Oper. C.F. > Lever'd C.F:  0.6598          Positive Free Cash Flow?   3.0000
Positive Oper. Cash Flow?  3.0000          Price to C.F.Ratio < 14?:  3.0000
                                           Cash Flow / Assets > 10%?  0.9393

AEL    American Equity Investment Life Hol Overall Zenith Index:      1.4508


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Financial Statements

Income Statement:

Balance Sheet:

Cash Flow Statement:






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Average to Current P/E Ratios
              (AEL)     American Equity Investment Life Ho

                               2013    2014    2015    2016    2017

          Annual Earnings:     3.38    1.58    2.72    0.97    1.93
Average Price During Year:    16.95   23.66   26.84   17.39   26.00

                P/E Ratio:     5.02   14.97    9.87   17.92   13.47

 Average 5-Year P/E Ratio  =  12.25
             Current Price =  35.12

Previous 5 Quarter Earnings:   0.60    0.30    0.63    0.41    1.55

           Current Annualized (Last Four Quarters) Earnings =   2.59
                                                           ________
                                 Average PE / Current PE =     0.90
                                                           --------

                                      ...a number above 1.00 is good
                                                1.00 or below is bad


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Channeling Potential

 
The summary below includes a value for `Degree,' which refers on a
scale of 1 to 10 the range of a channel in the period under consi-
deration compared to the total range of price movement. It also looks
for the last closing price to be within the channel, otherwise zeroed.
The `Index' is the `Degree' weighted for volatility.  Generally, the
the higher the index, the more suitable is the stock for trading as
a `rolling stock' between channel high and low points.

Results for AMERICAN INVESTMENT EQUITY LIFE HOLDING:
Symbol? AEL
Total Months Available:  25
       Months in Cycle?   4

Months Covered by Periods:  12

Period 1           Period 2          Period 3
   H1      L1        H2      L2        H3      L3
  28.64   23.02     34.65   27.73     35.79   27.06

RANGE   =  35.79  TO   23.02            Close =  32.28
CHANNEL =  28.64  TO   27.73           Degree =   1
Volatility =   2.82%                    Index =   0
Channel Chart



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7 out of 8 favorable, (positive opinion.)

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3 out of 3 of the ultimate systems favor an upmove.


System Below:
Short term outlook: Positive: Bright Green, Negative: Bright Red
Long term outlook: Postive: Dark Green, Negative: Dark Red.




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Recommendation

Decision Weighting Factors
FactorsWeighted Points
News + 1
Comparison - 1
Industry - 1
Bond Issue + 1
Zenith Index + 1
Non-GAAP vs. GAAP Earnings - 1
Cash Flow - 1
Average to Current P/E - 1
Ratios + 1
Market Grader - 1
Intrinsic Value DCF - 1
Tangible Book Value + 1
Projected Earnings + 1
Research Reports + 1
Analysts + 1
Executive Perquisites - 1
Insider Activity - 1
Institutional Activity - 1
Management Reporting + 1
Short Interest - 1
Sentiment - 1
Standard & Poor's + 1
MACD Histogram Divergence + 1
Val Idea + 1
Stock Consultant - 1
Point & Figure + 1
Wall Street Analyzer + 1
Marketspace Chart + 1
Time Series Chart + 1
Neural Network + 1
Stock Options + 1
Ultimate Trading Systems + 1
Total + 5
Place 860 shares of American Equity Investment Life Holding Co. (AEL) on the Active List.