New Bermuda Reinsurance Subsidiary Will Improve Capital Management Flexibility

Key Takeaways

• Strategic initiatives, including emerging market expansion and new subsidiaries, enhance growth prospects and improve cash flow and earnings consistency.
  
• Focus on efficient capital management, increased assets, and expanded product offerings aims to boost organic growth and shareholder returns.
  
• Reliance on non-GAAP measures, equity market volatility, competition, and macroeconomic factors threaten earnings stability, revenue streams, and targeted margins, affecting investor confidence.

Catalysts

Together with its consolidated subsidiaries, operates as a diversified financial services company worldwide.

• Equitable Holdings is forecasting significant cash generation growth, aiming for $2 billion by 2027, driven by improvements in business efficiency and strategic initiatives, which is expected to positively impact earnings and shareholder returns.
  
• The company has successfully increased assets under management, surpassing $1 trillion, which bodes well for future growth in fee and spread-based earnings, enhancing revenue potential as they enter 2025.
  
• By establishing a new Bermuda reinsurance subsidiary, Equitable gains flexibility to manage capital efficiently and support future growth, potentially leading to a more consistent and enhanced cash flow, positively influencing net margins.
  
• Equitable's strategic initiatives in emerging markets, such as in-plan guarantees and expansion into China and insurance asset management, are expected to seed future growth and improve earnings, as these areas represent new revenue streams with growth potential through 2027.
  
• The company continues its emphasis on initiatives like enhancing its Retirement and Wealth Management product offerings and leveraging the AB private markets platform, which collectively aim to sustain organic growth and enhance earnings by achieving scale in high-growth business areas.

Equitable Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equitable Holdings's revenue will grow by 14.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $8.87) by about March 2028, up from $1.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, down from 12.9x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 5.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Equitable Holdings Future Earnings Per Share Growth

Risks

• The business may face challenges due to its reliance on non-GAAP measures, which can obscure actual earnings performance and create uncertainty about true profitability, potentially affecting investor confidence and market valuation. [Earnings]
  
• The asset management segment could be pressured by volatile equity markets and underperformance in institutional equities, which may impact inflow stability and reduce fee-based income. [Revenue]
  
• Increasing competition and tighter spreads in the RILA market may lead to margin compression and challenge Equitable's ability to sustain its targeted 15% IRRs from new business. [Net margins]
  
• The company's strategy in the growing in-plan guarantee market and other institutional offerings is expected to be lumpy and variable, possibly leading to unpredictable revenue streams and tighter liquidity management. [Cash flow/revenue]
  
• The significant leverage on the macroeconomic environment, such as interest rates, equity markets, and volatility in alternative returns, poses risks that could deviate results from forecasted targets, affecting future cash flows and earnings stability. [Cash flow/earnings]

Valuation

• The analysts have a consensus price target of $62.7 for Equitable Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $72.0, and the most bearish reporting a price target of just $49.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $19.2 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 7.8%.
• Given the current share price of $51.62, the analyst price target of $62.7 is 17.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.