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Athene Holding's (ATH) Scalable Platform Firmly Fuels Growth

Zacks Equity Research

Athene Holding Ltd. ATH, a retirement services company, has been delivering adjusted operating income growth over a considerable period of time. The reason behind 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 $7.38, which reflects a year-over-year increase of 20.9%.

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 strongest 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 further fortify its portfolio. The company anticipates the inorganic pipeline for the fourth quarter and beyond to remain sturdy.

Riding on its robust businesses and prudent inorganic abilities, the company has been able to drive steady growth. In the first nine months of 2018, the company successfully generated more than $27 billion of total organic and inorganic deposits, resulting in a substantial rise of 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 increase in premiums, product charges and investment income. In fact, the Zacks Consensus Estimate for 2019 revenues is pegged at $5.1billion, representing a 22.6% year-over-year increase.

When it comes to capital management, the company’s approach to the same has led to 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 resulted in continued growth in adjusted book value that came in higher than the already attractive historical compound growth rate of 17% over the past nine years (which is more than four times the industry average).

Shares of this Zacks Rank #1 (Strong Buy) life insurer have lost 18.8% in a year’s time, narrower than the industry’s decline of 26.2%. We believe, the aforementioned upsides will push the stock up in the near term.

With regard to earnings history, the company delivered positive surprises in all the trailing four reported quarters, the average being 17.37%.

Shares of the company are trading at a price-to-book multiple of 0.91, lower than the industry average of 1.75. 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.

Additionally, the stock carries a favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back-tested results have shown that stocks with a VGM Score of A or B when combined with a top Zacks Rank of 1 or 2 (Buy) offer best investment opportunities.

Other Stocks to Consider

Investors interested in some other top-ranked stocks from the same space can also consider Torchmark Corporation TMK, Genworth Financial, Inc. GNW and FGL Holdings FG, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Torchmark provides various life and health insurance products and annuities in the United States, Canada and New Zealand. The company delivered positive surprises in three of the trailing four reported quarters, the average beat being 2.20%.

Genworth Financial provides insurance and homeownership solutions in the United States and internationally. The company pulled off earnings surprises in all the previous four reported quarters, the average being 76.99%.

FGL Holdings sells individual life insurance products and annuities in the United States. The company surpassed estimates in three of the preceding four reported quarters, the average beat being 6.47%.

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