AXA Equitable Holdings (EQH), the U.S. arm of French insurance giant AXA Group, will IPO on Thursday, May 10. At a price range of $24 to $27 per share, the company plans to raise $3.5 billion, which would make it the largest US IPO since Alibaba (BABA) in 2014.
Despite its size, EQH has attracted less attention than similarly sized IPO's such as Dropbox (DBX) and Spotify (SPOT). As a financial firm, it's not as “sexy” as those high-flying tech stocks, and its financial statements are difficult to sort through.
This report aims to help investors sort through the complex financial filings to understand the fundamentals and valuation of this IPO.
GAAP Earnings Understate Profit Growth
EQH consists of two primary businesses: AXA Equitable Life Insurance, and investment manager AllianceBernstein (AB), a subsidiary in which EQH has a controlling stake. The two businesses are separate but complementary, as AllianceBernstein manages a significant portion of AXA Equitable Life's assets.
On the surface, those businesses appear to be struggling. GAAP net income decreased from $1.3 billion in 2016 to $840 million in 2017, a 34% decline. However, Figure 1 shows that after-tax operating profit (NOPAT) actually increased from $300 million to $1.7 billion in 2017.
Figure 1: EQH GAAP Net Income and NOPAT Since 2016
Sources: New Constructs, LLC and company filings
Non-operating items significantly overstated EQH's profitability in 2016 and understated its profitability in 2017. For 2017, the Robo-Analyst[1] uncovered the following hidden non-operating expenses:
On the other hand, 2016 earnings were overstated due to $1.9 billion in pretax gain on the sale of two properties in New York City.
