With XL Losses Finally, Probably, Fenced In, AXA Looks Undervalued

It has been a while since I've written on France's global insurance giant AXA (OTCQX:AXAHY). When I last wrote about the stock, I liked the shares but I wasn't sold on the wisdom of the company's acquisition of XL Group, and the intervening years have seen XL cause all manner of headaches for AXA, weighing on results and sentiment (the shares are barely up from that last article). I did like the overall shift toward P&C, though, and I still do, and I believe AXA is in a better position today.

While P&C rate growth is highly likely to slow and low interest rates make life more challenging, I like the overall growth prospects across the business, including a better-run XL and growth opportunities in Life & Savings in Asia. With a cleaner balance sheet and less reserve risk from XL, I believe management could start to get more aggressive in its pursuit of growth, particularly across Asia.

My modeling assumptions for AXA drive a long-term core earnings growth rate of around 3% to 4% relative to the pre-pandemic baseline, with mid-single-digit earnings growth over the next few years. Were AXA to get more aggressive building its business in Asia, I believe there would be upside to that growth rate, but as is, it still supports a double-digit long-term annualized total return today.

 

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With XL Losses Finally, Probably, Fenced In, AXA Looks Undervalued