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Last Update: 04-Jun-18 09:17 ET

Goldman Sachs Gives Investors Green Light on AXA Equitable (EQH)

On May 10, AXA Equitable’s (AXA) IPO generated far less in proceeds than expected as the deal priced well below expectations. Specifically, the 137.25 million share IPO priced at $20 versus the $24-$27 expected price range, raising $2.75 billion in the process. That still made EQH the largest IPO of the year, but, had it priced at the mid-point of the expected price range, it would have generated nearly $3.5 billion in capital. 

So, in terms of the IPO pricing, the deal was a disappointment. However, EQH has managed to recover a bit as the stock is currently trading around the $22 level. The weak pricing and opening for EQH opened the door for investors looking to take advantage of the slow start. Similarly, as the quiet period expires today, some financial firms — most notably Goldman Sachs — are feeling bullish on the stock, believing the poor pricing has created a favorable risk/reward scenario. 

Before discussing today’s initiations, here is a little more background on the company. 

AXA Equitable (EQH), a wholly-owned subsidiary of France-based AXA, is one of the largest financial services company in the country with more than $670 billion in assets under management. It owns two primary franchises, AXA Equitable Life and Alliance Bernstein, and operates through four main business segments:

  • Individual Retirement: EQH is a provider of variable annuity products, which are primarily sold to affluent and high net worth individuals saving for retirement or seeking guaranteed retirement income. As of December 31, 2017, it ranked third in variable annuity market share.
  • Group Retirement: This segment offers tax-deferred investment products and related services to employer-sponsored plans, sponsored by educational and not-for-profit organizations, such as municipal governments, as well as SMBs. As of December 31, 2017, it had relationships with approximately 26,000 employers and served more than 1.0 million participants, of which approximately 725,000 were educators. The recurring nature of the revenues from this business make it an important and stable contributor of earnings and cash flow.
  • Investment Management & Research: This provides diversified investment management and research services to a broad range of clients. It distributes its investment management products through three main client channels — Institutional, Retail and Bernstein Private Wealth Management — and distributes its institutional research products and solutions through Bernstein Research Services. AB Holding is a publicly traded (AB) master limited partnership publicly. Giving effect to the reorganization transactions, EQH will own an approximate 65% economic interest in AB at the time of the offering.
  • Protection Services: Its protection services business includes its life insurance and employee benefits businesses. Its product offerings include VUL, IUL and term life products, which represented 48%, 41% and 9% of its total life insurance annualized premium, respectively, for the year ended December 31, 2017. Its life insurance products are primarily designed to help affluent and high net worth individuals as well as small and medium-sized business owners protect and transfer their wealth and are primarily distributed through AXA Advisors and select third-party firms.

Due to the size and prominence of EQH, there are many financial firms starting coverage on EQH today. Generally speaking, sentiment seems somewhat mixed, but, the initiation that certainly is catching the most attention is Goldman Sachs’ Buy and $34 price target. By far, the $34 price target is the highest on the street, a good 55% above the current price. Combine the aggressive price target with the caliber of Goldman Sachs, and, it’s easy to see why investors are honing in on this particular initiation.

Other notable bullish initiations include Morgan Stanley’s Overweight and $26 target, SunTrust’s Buy and $27 target, and RBC Capital Market’s Outperform and $26 target. 

Balancing out these bullish initiations are a few more cautious ones. For instance, Credit Suisse put a Neutral on the stock with a price target of $24 — only 9% higher from current prices. And JP Morgan assigned EQH with a Neutral as well, with a $25 target.

All in all, though, today’s quiet period expiration could end up being a positive catalyst for the stock, thanks to Goldman Sachs decisively bullish call. And with the markets currently looking at a solid open, the underlying climate is looking supportive for EQH today, as well.

On May 10, AXA Equitable’s (AXA) IPO generated far less in proceeds than expected as the deal priced well below expectations. Specifically, the

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