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Athene Holding's Scalable Platform Aids, High Costs Hurt

Athene Holding Ltd. ATH, a retirement services company, has been delivering adjusted operating income growth over a considerable period of time. The reason for this consistent success is the life insurer’s ability to leverage its structural advantages and differentiated attributes to create value. In fact, the Zacks Consensus Estimate for 2019 earnings is pegged at $7.39, reflecting a year-over-year increase of nearly 27%.

It is important to note here that one of the key ways to drive an excellent financial performance is through a highly scalable platform.

With respect to underwriting discipline, the company has been able to maintain a solid momentum by pricing its businesses to mid-teen returns on an aggregate basis. To that end, the insurer’s retail annuity business showed maximum growth in sales and this trend is expected to sustain in the future.

Moreover, the company’s inorganic portfolio has been impressive and the three deals inked during the third quarter of 2018 will likely fortify its portfolio in times to come. The company anticipates its inorganic pipeline to further remain sturdy.

Riding on its robust businesses and prudent acquisition abilities, the company has been able to drive steady growth. The company has been successfully generating a significant amount of total organic and inorganic deposits, thereby leading to a substantial rise in retirement services reserve liabilities.

Coming to the top line, the company has been constantly witnessing higher revenues in the last few years, primarily owing to higher premiums, product charges and investment income. In fact, the Zacks Consensus Estimate for 2019 revenues stands at $5.2 billion, representing a 26.5% year-over-year increase.

When it comes to capital management, the company’s approach to the same led to a significant equity value creation over a considerable period of time and we expect this to remain intact in the near term as well.

The insurer’s capital position remains sound with $9.1 billion adjusted shareholders’ equity, about $2 billion of excess capital and $2 billion of debt capacity. This, in turn, is estimated to contribute to its firm rating improvements over time.

The company’s stable return on equity (ROE) performance led to consistent growth in adjusted book value, above the already attractive historical compound growth rate of 17% over the past nine years (more than four times the industry average).

Shares of this Zacks Rank #3 (Hold) life insurer have gained 2.4% year to date, underperforming the industry’s rally of 18.5%. However, we believe, the aforementioned upsides will push the stock up in the near term.

 

Shares of the company are trading at a price-to-book multiple of 0.97, lower than the industry average of 3.28. Price to book value ratio is the best multiple for valuing life insurers because of large variations in earnings results from one quarter to the next. This ratio essentially measures a life insurer’s current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are profitable picks.

However, the company has been experiencing escalating expenses since the past few years, which might restrict its margin expansion.  

Stocks to Consider

Investors interested in better-ranked stocks from the insurance industry can consider Cincinnati Financial Corporation CINF, Hallmark Financial Services, Inc. HALL and Health Insurance Innovations, Inc. HIIQ, each sporting a Zacks Rank #1 (Strong Buy). You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in three of the trailing four quarters, the average beat being 18.08%.

Hallmark Financial underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States. The company surpassed estimates in all the preceding four quarters, the average being 91.28%.

Health Insurance Innovations operates as a cloud-based technology platform and distributor of individual plus family health insurance plans as well as supplemental products in the United States. The company exceeded estimates in all the previous four quarters, the average being 9.02%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

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Health Insurance Innovations, Inc. (HIIQ): Free Stock Analysis Report
 
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