AEL - American Equity Life lands Strong Buy rating at RayJay

American Equity Life ( NYSE: AEL ) stock gained 2.6% in Monday morning trading after the life insurer received a Strong Buy rating from Raymond James on the execution of AEL's restructuring plan and its potential to be targeted as a takeout candidate.

Brookfield Asset Management ( BAM ) appears committed to holding on to its ~18.5% stake in American Equity ( AEL ), but is constrained by its standstill agreement with AEL that stays in place until 2025. "But, BAM could attract a third-party activist, and given it can vote its first 9.9% as it wishes, it could have considerable impact if a third party threatens a proxy fight to vote out board members or management," Raymond James analyst Wilma Burdis wrote in a note to clients.

Even without that scenario, AEL 2.0 "remains compelling," she said. The strategy, launched in 2020, seeks to shift the company "toward fee-based earnings using third-party reinsurance and sidecars,  improve investment yields, strengthen distribution and innovate products, and optimize its foundational capabilities," the analyst said.

In addition, new guidance issued at its investor day is favorable, Burdis said — ROE of 11-14% in 2023 and beyond, expected gross sales of ~$4B in 2023 and ~$5B in 2024, yield trending up ~4% in 2025 vs. ~4.3% in 2022, and investment spreads rising to ~2.9% in 2025 vs. ~2.6% in 2022.

Burdis's Strong Buy call aligns with the SA Quant rating and compares with the average Wall Street rating of Buy.

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