Goldman Sachs Projects Upside For Newly Public AXA Equitable In Bullish Initiation

Financial services company AXA Equitable Holdings Inc EQH is the largest U.S. IPO to date in 2018. The stock is up 9 percent from its May 9 IPO price, but the company could be well-positioned to deliver additional upside in the quarters ahead, according to Goldman Sachs. 

The Analyst

Goldman Sachs analyst Alex Scott initiated coverage of AXA with a Buy rating and $34 price target.

The Thesis 

AXA’s 9-percent cash flow yield and its opportunity for near-term return on equity improvements make the stock a solid bet for investors, Scott said in a Monday note. 

“There could also be further upside optionality from the potential for a variable annuity risk transfer transaction given the company’s block of variable annuities with GMIB riders that we believe are attractive to reinsurance counterparties," the analyst said. 

AXA’s capital requirement for variable annuities is on the decline compared to peers who are dealing with growing capital requirements, Scott said. The company's 65-percent ownership stake in AllianceBernstein Holding LP AB should provide a major shot in the arm to AXA’s cash flow over time, he said. 

In the near-term, Scott said AXA repositioning its general account portfolio from treasury bonds to investment-grade corporate bonds will improve earnings by $160 million by 2020.

AXA has the potential to divest its variable annuities business in the same way Hartford and Voya have, and reinsurance companies may be particularly interested in AXA’s unique set of assets, the analyst said. 

Price Action

AXA stock was up 0.56 percent at the time of publication Monday afternoon. 

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