AXA Equitable's Valuation Doesn't Reflect Its Solid Fundamentals, Morgan Stanley Says In Positive Initiation


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Financial services company AXA Equitable Holdings Inc (NYSE:EQH) recently offered 137.25 million shares in an IPO at $20 each. With the IPO quiet period expiring, the sell-side is starting coverage of the company.

The Analyst

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Nigel Dally, an analyst at Morgan Stanley, one of the lead book-running managers and underwriters for the offering, initiated coverage of AXAEquitable at Overweight with a $26 price target, representing 21-percent upside.

The Thesis

AXA Equitable remains on track to deliver solid earnings growth and return on equity expansion through portfolio optimization, expense initiatives and the growth of "higher-return, less-capital-intensive business lines," Dally said in a Monday note.

The company's ROE for 2017 was 12 percent, while it looks to achieve a mid-teens ROE by 2020, the analyst said. The target is achievable, Dally said, thanks to investment portfolio repositioning, expense reduction and a business mix shift from the legacy block business to higher ROE product lines.


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Morgan Stanley estimates earnings per share of $3.60 and $4 in 2018 and 2019, respectively.

Solid fundamental prospects are not reflected in AXA Equitable's valuation, Dally said, prompting him to recommend building a position in the stock at today's levels. 

The equity trades at a depressed price-to-earnings ratio of 5.4 times its estimated earnings for 2018, a small premium to peer Brighthouse Financial Inc (NASDAQ:BHF)'s valuation but significantly below the valuation of Lincoln National Corporation (NYSE:LNC), the analyst said. 

The Price Action

Since its May 10 listing, the stock has gained 5.9 percent to $21.54.

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27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


Posted In: Analyst ColorPrice TargetInitiationAnalyst RatingsMorgan StanleyNigel Dally