Biggest U.S. IPO of 2018 Looks Undervalued to Wall Street

(Bloomberg) -- Axa Equitable Holdings Inc.’s stock price doesn’t reflect the high likelihood of earnings growth and an expanding return on equity, analysts said in initiations today. Most praised the U.S. business of French insurance giant Axa SA for cutting costs and focusing on higher-return products since last month’s initial public offering. The initiations include analysts whose banks were underwriters on the May 9 listing at $20 per share, below the price range. Most 12-month price targets are within the deal’s $24 to $27 offering range. Axa Equitable’s $3.2 billion listing was the largest U.S. IPO of 2018 to date, according to Bloomberg data.

Goldman Sachs (Alex Scott)

  • Optimistic due to solid cash flow yield, near-term return on equity improvement that should drive cash flow higher over the next year
  • Further upside is possible on the potential for a variable annuity risk transfer transaction; company’s variable annuities with guaranteed minimum income benefit riders are attractive to reinsurance counterparties
  • New buy, PT Street-high $34

Morgan Stanley (Nigel Dally)

  • Company is on-track to deliver solid earnings growth and return on equity expansion, which is not reflected in stock price
  • Cites portfolio optimization, expense initiatives, growth of higher-return business lines
  • New overweight, PT $26

Deutsche Bank (Joshua Shanker)

  • Life insurance sector and annuity writers without long-term care exposure are undervalued; EQH provides one of the best variable annuity/distribution platforms in the life space
  • Positive on immediate deployment of capital, U.S.-centric business focus, no long-term care exposure
  • New buy, PT $25

RBC (Mark Dwelle)

  • Mature, well-established retirement products company holds leading market positions
  • Balance sheet is clean, no legacy concerns, has excess capital
  • New outperform, PT $26

SunTrust (Mark Hughes)

  • Expects marginal topline growth, margin expansion on broad cost-cutting initiative, active capital management; capital efficiency should improve over time as mix shifts towards high-return products
  • Management takes a conservative approach to risk, aggressive in hedging and reinsurance to limit potential volatility around core variable annuity book
  • New buy, PT $27

Data:

  • 6 buys, 3 holds, 0 sells, average PT $27: Bloomberg data
  • Short interest 5.9% of float, financing rate 1.40%, 3.1 days to cover (10-day avg): S3 Partners
  • Shares up 7.7% from May 9 IPO price of $20/share

Related:

  • June 1, Year’s Largest IPO May Win Support From Wall Street Next Week
  • May 31, Variable Annuity Sales Hold Level in 1Q But Outlook Uncertain: BI
  • May 10, Axa’s Lackluster U.S. IPO Fails to Impress Wary Investors

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