Potential Catalysts at Equitable

07/20/2020 5:00 am EST

Focus: FINANCIALS

Bruce Kaser

Chief Analyst, Cabot Undervalued Stocks Advisor

Equitable Holdings (EQH) has many appealing traits worthy of a repeat recommendation: solid position in its industry, strong finances and undervaluation; also, there is a potential catalyst — a possible sale/spin-off of its AllianceBernstein business, suggests Bruce Kaser, a long-standing investment expert and the new editor of Cabot Undervalued Stocks Advisor.

Equitable owns two principal franchises: Equitable Financial Life Insurance Co. and a majority stake in AllianceBernstein Holdings L.P. (AB), a highly respected investment management and research firm.

Equitable, with a 161-year history, was acquired by French insurer AXA in 1992. Through subsequent stock sales, AXA currently owns less than 10% of Equitable. With its new-found independence, Equitable may be considering strategic changes for its 65% ownership in AllianceBernstein.

Equitable Holdings is well-capitalized and has significant liquidity. Its diverse, high-quality investment portfolio is hedged against adverse changes in interest rates and equity markets.

AllianceBernstein’s assets under management (AUM) as of May was $596 billion. Equitable expects to continue delivering a 50-60% payout ratio via dividends and share repurchases.

Profits are expected to fall 14% in 2020, then rise 18% in 2021. Equitable shares are undervalued, with a 2020 P/E of 4.6x. Like many insurance companies, investors also value Equitable on a book value basis.

With its $37.78 in per-share book value, EQH trades at .50x P/BV, which is a significant discount. This low valuation may be prompting management to consider reducing or exiting its AllianceBernstein stake.

At 19, EQH shares trade below their 20 IPO price, which was then a disappointment relative to the 24-27 price range that bankers had targeted. Since then Equitable has arguably become a better company and any sale of AllianceBernstein is likely to unlock further value.

EHQ shares are appropriate for dividend investors, growth investors and traders. While the shares — which yield 3.5% — may trade in sync with the overall stock market, given its investment-driven operations, we see more upside than downside. The stock earns my "Strong Buy" rating.

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