Intrinsic value of American Equity Investment Life Holding - AEL

Previous Close

$31.22

  Intrinsic Value

$298.63

stock screener

  Rating & Target

str. buy

+857%

Previous close

$31.22

 
Intrinsic value

$298.63

 
Up/down potential

+857%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as AEL.

We calculate the intrinsic value of AEL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  46.15
  49.10
  44.69
  40.72
  37.15
  33.93
  31.04
  28.44
  26.09
  23.98
  22.09
  20.38
  18.84
  17.46
  16.21
  15.09
  14.08
  13.17
  12.35
  11.62
  10.96
  10.36
  9.83
  9.34
  8.91
  8.52
  8.17
  7.85
  7.56
  7.31
  7.08
Revenue, $m
  0
  3,310
  4,789
  6,740
  9,243
  12,380
  16,222
  20,836
  26,272
  32,573
  39,767
  47,870
  56,889
  66,819
  77,650
  89,366
  101,949
  115,377
  129,631
  144,694
  160,548
  177,183
  194,592
  212,773
  231,727
  251,465
  272,000
  293,350
  315,540
  338,600
  362,563
Variable operating expenses, $m
 
  3,499
  5,062
  7,124
  9,770
  13,085
  17,147
  22,023
  27,770
  34,430
  42,034
  50,599
  60,131
  70,627
  82,076
  94,460
  107,760
  121,953
  137,020
  152,941
  169,699
  187,283
  205,684
  224,901
  244,936
  265,799
  287,504
  310,071
  333,526
  357,900
  383,229
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,505
  3,499
  5,062
  7,124
  9,770
  13,085
  17,147
  22,023
  27,770
  34,430
  42,034
  50,599
  60,131
  70,627
  82,076
  94,460
  107,760
  121,953
  137,020
  152,941
  169,699
  187,283
  205,684
  224,901
  244,936
  265,799
  287,504
  310,071
  333,526
  357,900
  383,229
Operating income, $m
  715
  -189
  -273
  -384
  -527
  -706
  -925
  -1,188
  -1,498
  -1,857
  -2,267
  -2,729
  -3,243
  -3,809
  -4,426
  -5,094
  -5,811
  -6,576
  -7,389
  -8,248
  -9,151
  -10,099
  -11,092
  -12,128
  -13,208
  -14,334
  -15,504
  -16,721
  -17,986
  -19,300
  -20,666
EBITDA, $m
  1,093
  -189
  -273
  -384
  -527
  -706
  -925
  -1,188
  -1,498
  -1,857
  -2,267
  -2,729
  -3,243
  -3,809
  -4,426
  -5,094
  -5,811
  -6,576
  -7,389
  -8,248
  -9,151
  -10,099
  -11,092
  -12,128
  -13,208
  -14,334
  -15,504
  -16,721
  -17,986
  -19,300
  -20,666
Interest expense (income), $m
  40
  43
  1,244
  3,175
  5,720
  8,987
  13,080
  18,095
  24,115
  31,210
  39,433
  48,821
  59,395
  71,164
  84,123
  98,257
  113,547
  129,967
  147,492
  166,094
  185,750
  206,440
  228,149
  250,867
  274,593
  299,329
  325,087
  351,884
  379,746
  408,704
  438,797
Earnings before tax, $m
  130
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463
Tax expense, $m
  47
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  83
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  56,053
  82,751
  119,732
  168,488
  231,079
  309,493
  405,562
  520,890
  656,805
  814,330
  994,177
  1,196,758
  1,422,216
  1,670,466
  1,941,242
  2,234,149
  2,548,713
  2,884,425
  3,240,785
  3,617,338
  4,013,699
  4,429,579
  4,864,802
  5,319,313
  5,793,187
  6,286,633
  6,799,995
  7,333,749
  7,888,504
  8,464,993
  9,064,074
Adjusted assets (=assets-cash), $m
  56,053
  82,751
  119,732
  168,488
  231,079
  309,493
  405,562
  520,890
  656,805
  814,330
  994,177
  1,196,758
  1,422,216
  1,670,466
  1,941,242
  2,234,149
  2,548,713
  2,884,425
  3,240,785
  3,617,338
  4,013,699
  4,429,579
  4,864,802
  5,319,313
  5,793,187
  6,286,633
  6,799,995
  7,333,749
  7,888,504
  8,464,993
  9,064,074
Revenue / Adjusted assets
  0.000
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
  0.040
Average production assets, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total debt, $m
  736
  21,450
  54,734
  98,614
  154,946
  225,519
  311,981
  415,776
  538,099
  679,872
  841,735
  1,024,057
  1,226,969
  1,450,394
  1,694,093
  1,957,709
  2,240,817
  2,542,957
  2,863,682
  3,202,579
  3,559,304
  3,933,596
  4,325,297
  4,734,356
  5,160,843
  5,604,945
  6,066,970
  6,547,349
  7,046,628
  7,565,468
  8,104,642
Total liabilities, $m
  53,762
  74,475
  107,759
  151,639
  207,971
  278,544
  365,006
  468,801
  591,124
  732,897
  894,760
  1,077,082
  1,279,994
  1,503,419
  1,747,118
  2,010,734
  2,293,842
  2,595,982
  2,916,707
  3,255,604
  3,612,329
  3,986,621
  4,378,322
  4,787,381
  5,213,868
  5,657,970
  6,119,995
  6,600,374
  7,099,653
  7,618,493
  8,157,667
Total equity, $m
  2,292
  8,275
  11,973
  16,849
  23,108
  30,949
  40,556
  52,089
  65,680
  81,433
  99,418
  119,676
  142,222
  167,047
  194,124
  223,415
  254,871
  288,442
  324,079
  361,734
  401,370
  442,958
  486,480
  531,931
  579,319
  628,663
  679,999
  733,375
  788,850
  846,499
  906,407
Total liabilities and equity, $m
  56,054
  82,750
  119,732
  168,488
  231,079
  309,493
  405,562
  520,890
  656,804
  814,330
  994,178
  1,196,758
  1,422,216
  1,670,466
  1,941,242
  2,234,149
  2,548,713
  2,884,424
  3,240,786
  3,617,338
  4,013,699
  4,429,579
  4,864,802
  5,319,312
  5,793,187
  6,286,633
  6,799,994
  7,333,749
  7,888,503
  8,464,992
  9,064,074
Debt-to-equity ratio
  0.321
  2.590
  4.570
  5.850
  6.710
  7.290
  7.690
  7.980
  8.190
  8.350
  8.470
  8.560
  8.630
  8.680
  8.730
  8.760
  8.790
  8.820
  8.840
  8.850
  8.870
  8.880
  8.890
  8.900
  8.910
  8.920
  8.920
  8.930
  8.930
  8.940
  8.940
Adjusted equity ratio
  0.041
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  83
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463
Depreciation, amort., depletion, $m
  378
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  1,189
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463
Change in working capital, $m
  -225
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from operations, $m
  1,414
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
New CAPEX, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from investing activities, $m
  -4,499
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Free cash flow, $m
  -3,085
  -231
  -1,517
  -3,559
  -6,246
  -9,693
  -14,005
  -19,283
  -25,613
  -33,066
  -41,699
  -51,549
  -62,638
  -74,973
  -88,549
  -103,351
  -119,358
  -136,544
  -154,881
  -174,341
  -194,901
  -216,539
  -239,240
  -262,995
  -287,801
  -313,662
  -340,591
  -368,605
  -397,732
  -428,005
  -459,463
Issuance/(repayment) of debt, $m
  100
  20,714
  33,283
  43,880
  56,332
  70,573
  86,462
  103,795
  122,324
  141,773
  161,862
  182,323
  202,912
  223,425
  243,699
  263,617
  283,107
  302,141
  320,724
  338,897
  356,725
  374,293
  391,701
  409,060
  426,487
  444,102
  462,026
  480,379
  499,279
  518,840
  539,173
Issuance/(repurchase) of shares, $m
  140
  6,214
  5,215
  8,434
  12,506
  17,534
  23,612
  30,815
  39,204
  48,819
  59,684
  71,807
  85,184
  99,798
  115,627
  132,642
  150,815
  170,115
  190,517
  211,996
  234,537
  258,127
  282,763
  308,446
  335,189
  363,007
  391,927
  421,981
  453,207
  485,654
  519,371
Cash from financing (excl. dividends), $m  
  3,499
  26,928
  38,498
  52,314
  68,838
  88,107
  110,074
  134,610
  161,528
  190,592
  221,546
  254,130
  288,096
  323,223
  359,326
  396,259
  433,922
  472,256
  511,241
  550,893
  591,262
  632,420
  674,464
  717,506
  761,676
  807,109
  853,953
  902,360
  952,486
  1,004,494
  1,058,544
Total cash flow (excl. dividends), $m
  415
  26,698
  36,981
  48,756
  62,591
  78,414
  96,069
  115,328
  135,915
  157,525
  179,847
  202,581
  225,458
  248,250
  270,776
  292,907
  314,564
  335,712
  356,360
  376,552
  396,361
  415,881
  435,223
  454,511
  473,874
  493,446
  513,362
  533,755
  554,754
  576,489
  599,082
Retained Cash Flow (-), $m
  -347
  -6,214
  -5,215
  -8,434
  -12,506
  -17,534
  -23,612
  -30,815
  -39,204
  -48,819
  -59,684
  -71,807
  -85,184
  -99,798
  -115,627
  -132,642
  -150,815
  -170,115
  -190,517
  -211,996
  -234,537
  -258,127
  -282,763
  -308,446
  -335,189
  -363,007
  -391,927
  -421,981
  -453,207
  -485,654
  -519,371
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  20,483
  31,766
  40,322
  50,086
  60,880
  72,457
  84,513
  96,711
  108,707
  120,163
  130,773
  140,274
  148,452
  155,150
  160,266
  163,749
  165,597
  165,844
  164,556
  161,824
  157,753
  152,460
  146,064
  138,685
  130,439
  121,435
  111,774
  101,547
  90,835
  79,710
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  19,639
  29,081
  35,091
  41,241
  47,190
  52,585
  57,095
  60,447
  62,446
  62,997
  62,102
  59,860
  56,444
  52,086
  47,051
  41,612
  36,031
  30,542
  25,337
  20,563
  16,317
  12,650
  9,573
  7,064
  5,074
  3,543
  2,399
  1,571
  992
  600
Current shareholders' claim on cash, %
  100
  30.9
  20.3
  12.9
  8.0
  4.9
  3.0
  1.9
  1.1
  0.7
  0.4
  0.3
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

American Equity Investment Life Holding Company is engaged in the development and sale of fixed index and fixed rate annuity products. The Company issues fixed annuity and life insurance products through its life insurance subsidiaries, American Equity Investment Life Insurance Company, American Equity Investment Life Insurance Company of New York and Eagle Life Insurance Company. Its target market includes the group of individuals aged 45 to 75 seeking to accumulate tax-deferred savings or create guaranteed lifetime income. The Company distributes through a range of distribution channels, including independent agents, broker/dealers, banks and registered investment advisors. Its product types include fixed index annuities, annual reset fixed rate annuities, multi-year fixed rate annuities and single premium immediate annuities. Its life insurance products include traditional ordinary and term, universal life and other interest-sensitive life insurance products.

FINANCIAL RATIOS  of  American Equity Investment Life Holding (AEL)

Valuation Ratios
P/E Ratio 33.1
Price to Sales 1.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 1.9
Price to Free Cash Flow 1.9
Growth Rates
Sales Growth Rate 46.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 32.1%
Total Debt to Equity 32.1%
Interest Coverage 4
Management Effectiveness
Return On Assets 0.2%
Ret/ On Assets - 3 Yr. Avg. 0.4%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 3.9%
Return On Equity - 3 Yr. Avg. 7.3%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 24.7%
EBITDA Margin - 3 Yr. Avg. 29.2%
Operating Margin 32.2%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. 12.3%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 25.3%

AEL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEL stock intrinsic value calculation we used $2220 million for the last fiscal year's total revenue generated by American Equity Investment Life Holding. The default revenue input number comes from 2016 income statement of American Equity Investment Life Holding. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AEL stock valuation model: a) initial revenue growth rate of 49.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AEL is calculated based on our internal credit rating of American Equity Investment Life Holding, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Equity Investment Life Holding.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AEL stock the variable cost ratio is equal to 105.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AEL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.8% for American Equity Investment Life Holding.

Corporate tax rate of 27% is the nominal tax rate for American Equity Investment Life Holding. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AEL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AEL are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in American Equity Investment Life Holding operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AEL is equal to 0%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2292 million for American Equity Investment Life Holding - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 89.066 million for American Equity Investment Life Holding is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Equity Investment Life Holding at the current share price and the inputted number of shares is $2.8 billion.

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COMPANY NEWS

▶ Top Ranked Value Stocks to Buy for December 13th   [Dec-13-17 03:50PM  InvestorPlace]
▶ Athene Holding (ATH) Jumps: Stock Rises 7.5%   [Dec-11-17 08:46AM  Zacks]
▶ American Equity beats Street 3Q forecasts   [Nov-06-17 06:00PM  Associated Press]
▶ American Equity beats Street 2Q forecasts   [Aug-02-17 10:54PM  Associated Press]
▶ American Equity Prices $500 Million of Senior Notes   [Jun-13-17 05:19PM  Business Wire]
▶ American Equity beats 1Q profit forecasts   [May-03-17 06:25PM  Associated Press]
▶ American Equity Broadens Fixed Annuity Portfolio   [Mar-03-17 12:40PM  Business Wire]
Financial statements of AEL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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