This financial firm beat earnings estimates by $0.32 last quarter and is due to report fourth quarter results at the end of this month. The current annual dividend is 2.25%, paid quarterly.
Equitable Holdings, Inc. (EQH)
From Cabot Stock of the Week
Today’s business headlines announced a big financial merger, with global investment manager Franklin Resources (Ben) buying Legg Mason (LM), a retail investment firm. I was thrilled by the news. I bought LM for several family members in recent months, but I wasn’t surprised, because there are far more investment and insurance companies on my buy list right now than any other industry.
Since I screen stocks, first and foremost, for strong earnings growth, it makes sense to me that a bigger company would want to own a smaller, very profitable company.
You’re in luck! There are many additional small- and mid-cap financial firms that warrant attention right now, including Equitable Holdings, Inc. (EQH), a leading U.S. provider of financial advice, asset management and protection solutions. The company has $701 billion in assets under management through two principal franchises: Equitable Life Insurance Co. and a majority stake in AllianceBernstein Holdings L.P. (AB), an investment management firm.
French insurer AXA S.A. (AXAHY) had held a 39.1% stake in AXA Equitable Holdings (EQH) until last month. At that time, AXA S.A. sold 144 million shares of EQH in a secondary stock offering in order to raise cash to fund last year’s $15 billion purchase of XL Group (XL). (XL Group was featured in Cabot Undervalued Stocks Advisor when they received the buyout offer from AXA in March 2018.) AXA S.A.’s ownership in EQH is now down to about 10%. Equitable subsequently changed their name from AXA Equitable Holdings to Equitable Holdings.
This year, Equitable announced an agreement to sell U.S. Financial Life Insurance Company and MONY Life Insurance Company of the Americas, Ltd. to Heritage Life Insurance Company. The transaction is expected to close in early 2020.
“This transaction simplifies our balance sheet and is aligned with our strategy to improve the return on capital of our Protection Solutions segment,” said Anders Malmstrom, Chief Financial Officer of AXA Equitable Holdings.
Last week, AllianceBernstein reported a huge fourth-quarter revenue and profit beat. Net income was $0.85 per unit vs. the analysts’ consensus estimate of $0.70, and revenue was $817 million vs. the $769.8 million estimate. The good news propelled both AllianceBernstein’s and Equitable’s stocks higher. After a great 2019, the AB shares are up another 16% so far this year. AllianceBernstein’s bullish results are great news for Equitable, because as a majority shareholder, Equitable’s value is also enhanced. Wall Street is expecting AllianceBernstein’s profits to rise another 17% in 2020.
Next up: Equitable’s fourth-quarter results, due out on the afternoon of February 26. Per the third-quarter report, the company is successfully increasing both insurance premiums and net inflows in all business divisions, which include Individual Retirement, Group Retirement, Investment Management & Research and Protection Solutions. The market’s expecting fourth-quarter earnings per share (EPS) of $1.17, within a range of $1.10-$1.25, and $3.4 billion revenue, within a range of $3.2-$3.5 billion. Full-year 2019 profits are expected to finish the year up 20%.
With so many of its insurance and investment peers outperforming expectations this earnings season, and guiding analysts’ 2020 forecasts upward, I naturally expect Equitable to follow suit. Amazingly, Equitable’s 2020 price/earnings ratio (P/E) is only 5.5. For comparison, Legg Mason’s 2020 P/E was 10.9 before the buyout offer was announced, and 13.4 at the $50 buyout price. Equitable has additional insurance and investment peers with much higher valuations: Ameriprise Financial (AMP) with a 9.7 P/E and Voya Financial (VOYA) with a 12.9 P/E. So, there’s room for Equitable to rack up serious capital gains without even coming close to their peers’ valuations.
Share repurchases and dividend payouts are a priority for Equitable. The current dividend yield is 2.2%; it was most recently increased in May 2019.
The company’s IPO was issued in May 2018. EQH rose to a new all-time high this month, and the price chart remains bullish. Barring a downturn in the broader stock market, I expect continued capital gains from EQH this year.
Timothy Lutts, Cabot Stock of the Week, cabotwealth.com, 978-745-5532, February 18, 2020