This week's monster IPO, that of financial services company AXA Equitable Holdings, stands to not only be the largest in terms of capital raised this year, but it's also likely to notch the record for the largest in this half of the decade so far. It tips the scales at around $3.5 billion, at the midpoint of its per-share IPO price. It'll be the biggest initial offering since the one floated by Chinese e-commerce monster Alibaba Group in 2014, which still holds the all-time record for size.
Alibaba's issue was a raging success, and the company's stock is popular these days. Could AXA's future as a publicly traded entity be just as bright?
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In the IPO, 137,250,000 AXA Equitable Holdings shares are being sold at a price of $24 to $27 per share. The stock is scheduled to start trading publicly on Thursday, May 10, and it will be listed on the New York Stock Exchange under the ticker symbol EQH.
The IPO is being conducted by the company's corporate parent, France-based global insurance giant AXA, which will receive all net proceeds from the issue. Following the IPO, AXA will retain a majority stake of around 75% in the American company.
The underwriting syndicate is large and star-studded. It is led by Morgan Stanley (NYSE: MS), JPMorgan Chase's (NYSE: JPM) J.P. Morgan Securities, Barclays (NYSE: BCS) Capital, and Citigroup (NYSE: C) Global Markets.
All about the annuities
AXA Equitable Holdings is essentially the American component of AXA. AXA Equitable Holdings makes most of its money from the sale of annuities and by providing other financial services. Appropriately for an AXA-branded company, its predecessor Equitable Holdings was one of the oldest American insurers; AXA acquired a majority stake in it in 1991.
AXA Equitable Holdings also owns a majority position in AllianceBernstein Holding (NYSE: AB), a publicly traded asset management company.
The operations of AXA Equitable Holdings are slotted into four divisions: individual retirement, group retirement, investment management and research, and protection solutions (basically life insurance). The company says that it's "a leading provider" of the variable annuity products sold by the individual retirement unit, and it commands strong positions in certain segments of its other businesses.
Of the four units, individual retirement was the largest in terms of revenue, taking in $4.4 billion in calendar 2017. Investment management and protection services both reaped around $3 billion, while group retirement brought up the rear at $947 million. AllianceBernstein's net revenue for the year was just under $3.3 billion.
Overall, consolidated revenue for AXA Equitable Holdings was just over $12.5 billion in calendar 2017, a 5% improvement over the 2016 tally. Attributable net income, however, fell by 33% to $850 million, due largely to an increase in reserves in the individual retirement unit.
The company points to the graying of America (the number of people 65 years and older is expected to more than double from 2016 to 2060, according to the Census Bureau) as a key catalyst for future growth. The pool of American retirement assets should deepen because of this; according to AXA Equitable Holdings, this amount is set to rise by over 5% per year from 2016 to 2021 .
Not a screaming bargain
These factors, combined with the company's strong and well-established position in the annuity segment, should help improve the top and bottom lines. But does that make this stock a compelling investment?
At the midpoint of its proposed price range, the price-to-attributed-earnings ratio is almost 17. That's higher than the 12 of component company AllianceBernstein, and well above the numbers of fellow annuity-slingers Prudential Financial and Lincoln National.
Analysts expect that both Prudential and Lincoln will post decent bottom-line growth for their current fiscal years. So in order to win lasting favor with investors (and justify the higher valuation), AXA Equitable Holdings will probably have to beat the pair at the growth game.
Elsewhere in the financial sector, AXA Equitable Holdings' trailing P/E is also roughly equal to that of JPMorgan Chase. For my money, JPMorgan Chase is the best-in-class stock among the "big four" American banks -- analysts are expecting nearly 30% growth in annual earnings this year.
In other words, AXA Equitable Holdings doesn't feel like a better investment than peers such as Prudential and Lincoln. It also isn't as attractive as JPMorgan Chase. Those who feel that annuities and life insurance (again, AXA Equitable Holdings' major business lines) have better-than-average potential might find the company alluring; I think there are juicier buys in the finance realm.
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