Intrinsic value of American Equity Investment Life Holding - AEL

Previous Close

$27.30

  Intrinsic Value

$276.14

stock screener

  Rating & Target

str. buy

+912%

  Value-price divergence*

+691%

Previous close

$27.30

 
Intrinsic value

$276.14

 
Up/down potential

+912%

 
Rating

str. buy

 
Value-price divergence*

+691%

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

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2.4

 

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
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  0
  3,552
  5,488
  8,207
  11,908
  16,801
  23,097
  31,003
  40,709
  52,382
  66,163
  82,159
  100,447
  121,073
  144,053
  169,380
  197,030
  226,962
  259,128
  293,476
  329,954
  368,515
  409,118
  451,733
  496,340
  542,932
  591,516
  642,112
  694,754
  749,490
  806,380
Variable operating expenses, $m
 
  3,754
  5,801
  8,675
  12,587
  17,758
  24,413
  32,770
  43,029
  55,368
  69,934
  86,842
  106,173
  127,974
  152,264
  179,035
  208,261
  239,899
  273,899
  310,204
  348,762
  389,521
  432,438
  477,482
  524,632
  573,879
  625,233
  678,713
  734,355
  792,211
  852,344
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
  3,754
  5,801
  8,675
  12,587
  17,758
  24,413
  32,770
  43,029
  55,368
  69,934
  86,842
  106,173
  127,974
  152,264
  179,035
  208,261
  239,899
  273,899
  310,204
  348,762
  389,521
  432,438
  477,482
  524,632
  573,879
  625,233
  678,713
  734,355
  792,211
  852,344
Operating income, $m
  715
  -202
  -313
  -468
  -679
  -958
  -1,317
  -1,767
  -2,320
  -2,986
  -3,771
  -4,683
  -5,725
  -6,901
  -8,211
  -9,655
  -11,231
  -12,937
  -14,770
  -16,728
  -18,807
  -21,005
  -23,320
  -25,749
  -28,291
  -30,947
  -33,716
  -36,600
  -39,601
  -42,721
  -45,964
EBITDA, $m
  1,093
  -202
  -313
  -468
  -679
  -958
  -1,317
  -1,767
  -2,320
  -2,986
  -3,771
  -4,683
  -5,725
  -6,901
  -8,211
  -9,655
  -11,231
  -12,937
  -14,770
  -16,728
  -18,807
  -21,005
  -23,320
  -25,749
  -28,291
  -30,947
  -33,716
  -36,600
  -39,601
  -42,721
  -45,964
Interest expense (income), $m
  40
  43
  1,560
  4,086
  7,635
  12,465
  18,849
  27,066
  37,383
  50,049
  65,283
  83,267
  104,142
  128,008
  154,925
  184,913
  217,966
  254,049
  293,110
  335,087
  379,911
  427,515
  477,837
  530,824
  586,436
  644,648
  705,451
  768,853
  834,881
  903,579
  975,009
Earnings before tax, $m
  130
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972
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
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972

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
  88,800
  137,196
  205,177
  297,701
  420,013
  577,421
  775,068
  1,017,713
  1,309,550
  1,654,068
  2,053,977
  2,511,183
  3,026,820
  3,601,319
  4,234,511
  4,925,753
  5,674,054
  6,478,207
  7,336,907
  8,248,861
  9,212,882
  10,227,961
  11,293,330
  12,408,503
  13,573,309
  14,787,908
  16,052,806
  17,368,852
  18,737,242
  20,159,506
Adjusted assets (=assets-cash), $m
  56,053
  88,800
  137,196
  205,177
  297,701
  420,013
  577,421
  775,068
  1,017,713
  1,309,550
  1,654,068
  2,053,977
  2,511,183
  3,026,820
  3,601,319
  4,234,511
  4,925,753
  5,674,054
  6,478,207
  7,336,907
  8,248,861
  9,212,882
  10,227,961
  11,293,330
  12,408,503
  13,573,309
  14,787,908
  16,052,806
  17,368,852
  18,737,242
  20,159,506
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
  26,895
  70,451
  131,634
  214,906
  324,987
  466,654
  644,536
  862,917
  1,125,570
  1,435,636
  1,795,554
  2,207,040
  2,671,113
  3,188,162
  3,758,035
  4,380,153
  5,053,624
  5,777,361
  6,550,191
  7,370,950
  8,238,569
  9,152,140
  10,110,972
  11,114,628
  12,162,953
  13,256,092
  14,394,500
  15,578,942
  16,810,493
  18,090,530
Total liabilities, $m
  53,762
  79,920
  123,476
  184,659
  267,931
  378,012
  519,679
  697,561
  915,942
  1,178,595
  1,488,661
  1,848,579
  2,260,065
  2,724,138
  3,241,187
  3,811,060
  4,433,178
  5,106,649
  5,830,386
  6,603,216
  7,423,975
  8,291,594
  9,205,165
  10,163,997
  11,167,653
  12,215,978
  13,309,117
  14,447,525
  15,631,967
  16,863,518
  18,143,555
Total equity, $m
  2,292
  8,880
  13,720
  20,518
  29,770
  42,001
  57,742
  77,507
  101,771
  130,955
  165,407
  205,398
  251,118
  302,682
  360,132
  423,451
  492,575
  567,405
  647,821
  733,691
  824,886
  921,288
  1,022,796
  1,129,333
  1,240,850
  1,357,331
  1,478,791
  1,605,281
  1,736,885
  1,873,724
  2,015,951
Total liabilities and equity, $m
  56,054
  88,800
  137,196
  205,177
  297,701
  420,013
  577,421
  775,068
  1,017,713
  1,309,550
  1,654,068
  2,053,977
  2,511,183
  3,026,820
  3,601,319
  4,234,511
  4,925,753
  5,674,054
  6,478,207
  7,336,907
  8,248,861
  9,212,882
  10,227,961
  11,293,330
  12,408,503
  13,573,309
  14,787,908
  16,052,806
  17,368,852
  18,737,242
  20,159,506
Debt-to-equity ratio
  0.321
  3.030
  5.140
  6.420
  7.220
  7.740
  8.080
  8.320
  8.480
  8.600
  8.680
  8.740
  8.790
  8.820
  8.850
  8.870
  8.890
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
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
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972
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
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972
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
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972
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
  -245
  -1,873
  -4,554
  -8,314
  -13,422
  -20,166
  -28,833
  -39,703
  -53,035
  -69,054
  -87,950
  -109,868
  -134,909
  -163,136
  -194,568
  -229,197
  -266,986
  -307,881
  -351,815
  -398,718
  -448,520
  -501,157
  -556,573
  -614,728
  -675,596
  -739,168
  -805,454
  -874,482
  -946,300
  -1,020,972
Issuance/(repayment) of debt, $m
  100
  26,159
  43,556
  61,183
  83,272
  110,081
  141,667
  177,882
  218,381
  262,653
  310,066
  359,918
  411,486
  464,073
  517,049
  569,873
  622,118
  673,471
  723,737
  772,830
  820,759
  867,619
  913,571
  958,832
  1,003,656
  1,048,325
  1,093,139
  1,138,408
  1,184,442
  1,231,551
  1,280,037
Issuance/(repurchase) of shares, $m
  140
  6,833
  6,712
  11,352
  17,566
  25,653
  35,907
  48,598
  63,968
  82,219
  103,506
  127,941
  155,588
  186,473
  220,585
  257,887
  298,321
  341,816
  388,296
  437,685
  489,914
  544,923
  602,665
  663,110
  726,245
  792,076
  860,628
  931,944
  1,006,087
  1,083,139
  1,163,199
Cash from financing (excl. dividends), $m  
  3,499
  32,992
  50,268
  72,535
  100,838
  135,734
  177,574
  226,480
  282,349
  344,872
  413,572
  487,859
  567,074
  650,546
  737,634
  827,760
  920,439
  1,015,287
  1,112,033
  1,210,515
  1,310,673
  1,412,542
  1,516,236
  1,621,942
  1,729,901
  1,840,401
  1,953,767
  2,070,352
  2,190,529
  2,314,690
  2,443,236
Total cash flow (excl. dividends), $m
  415
  32,747
  48,396
  67,981
  92,524
  122,312
  157,408
  197,647
  242,645
  291,836
  344,518
  399,909
  457,207
  515,637
  574,498
  633,192
  691,242
  748,301
  804,153
  858,700
  911,954
  964,021
  1,015,079
  1,065,369
  1,115,173
  1,164,805
  1,214,599
  1,264,898
  1,316,047
  1,368,390
  1,422,264
Retained Cash Flow (-), $m
  -347
  -6,833
  -6,712
  -11,352
  -17,566
  -25,653
  -35,907
  -48,598
  -63,968
  -82,219
  -103,506
  -127,941
  -155,588
  -186,473
  -220,585
  -257,887
  -298,321
  -341,816
  -388,296
  -437,685
  -489,914
  -544,923
  -602,665
  -663,110
  -726,245
  -792,076
  -860,628
  -931,944
  -1,006,087
  -1,083,139
  -1,163,199
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
 
  25,914
  41,684
  56,629
  74,958
  96,659
  121,501
  149,049
  178,677
  209,618
  241,012
  271,968
  301,618
  329,164
  353,913
  375,305
  392,921
  406,485
  415,857
  421,015
  422,040
  419,098
  412,415
  402,259
  388,928
  372,729
  353,972
  332,954
  309,960
  285,251
  259,065
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
 
  24,845
  38,160
  49,282
  61,721
  74,922
  88,179
  100,696
  111,678
  120,414
  126,353
  129,154
  128,711
  125,154
  118,815
  110,183
  99,850
  88,445
  76,584
  64,824
  53,628
  43,349
  34,220
  26,365
  19,809
  14,500
  10,327
  7,146
  4,796
  3,114
  1,951
Current shareholders' claim on cash, %
  100
  25.9
  15.0
  8.4
  4.6
  2.5
  1.4
  0.8
  0.4
  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
  0.0
  0.0
  0.0

American Equity Investment Life Holding Company, through its subsidiaries, develops and sells fixed index and fixed rate annuity products in the United States. It issues fixed index annuities and fixed rate annuities, as well as single premium immediate annuities. The company also offers life insurance products comprising traditional ordinary and term, universal life, and other interest-sensitive life insurance products. It targets group of individuals aging 45-75 who are seeking to accumulate tax-deferred savings or create guaranteed lifetime income. The company markets its products through a brokerage distribution network of approximately 38 national marketing organizations and approximately 35,000 independent agents. American Equity Investment Life Holding Company was founded in 1995 and is based in West Des Moines, Iowa.

FINANCIAL RATIOS  of  American Equity Investment Life Holding (AEL)

Valuation Ratios
P/E Ratio 28.9
Price to Sales 1.1
Price to Book 1
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow 1.7
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 60% 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 10 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 87.459 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 $2.4 billion.

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COMPANY NEWS

▶ 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]
▶ [$$] Life Insurers: Go Big or Go Home   [04:28PM  at Barrons.com]
▶ [$$] American Equity Life: collateral damage   [Sep-08-16 08:28AM  at Financial Times]
Stock chart of AEL 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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