Sunday, March 20, 2016

Seeking Alpha: AXA Needs To Unlock Growth To Achieve A Higher Share Price

French insurance giant AXA (OTCQX:AXAHY) has been doing what it said it would, but investors have been slow to reward the company for its progress. The shares are down about 3% from my last update, which is better than the performance of peers like Generali (OTC:ARZGF), Aviva (NYSE:AV), and Zurich (OTCQX:ZURVY), and a little worse than Allianz (OTCQX:AZSEY), but investors shouldn't shoot for "no worse than the others" with their investments.

Management has done a good job of reducing expenses and boosting cash flow, and the company's relatively solid Solvency II score is encouraging for further capital distributions to shareholders. On the other hand, high-growth markets like Turkey haven't delivered the hoped-for growth, P&C premium growth has proven challenging, and inflows to both the life and asset management businesses aren't as strong as they need to be.

A key consideration, then, is whether AXA can take the steps necessary to accelerate bottom line growth from the 2% to 3% rate seen in 2015. Today's price is fair if the 10-year adjusted earnings growth averages around 3%. A growth rate of 4% bumps the fair value to $26.50 and a little over 5% a year in adjusted earnings growth supports a target close to $29.50. I believe 5% is attainable, but far from certain, so this isn't a money-for-nothing sort of investment prospect.

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AXA Needs To Unlock Growth To Achieve A Higher Share Price

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