ATH stock (Athene Holding) analysis, predictions, target price

ATH stock was suggested for analysis by one of my blog's most active subscribers. Thank you.

I have stumbled upon ATH stock in the past but rejected during early screening. However, the stock is indeed worth taking a closer look at.


Athene Holding Ltd., a retirement services company, issues, reinsures, and acquires retirement savings products for individuals and institutions in the United States and Bermuda. The company provides annuity retirement solutions to its policyholders; and reinsures multi-year guaranteed annuities, fixed indexed annuities, traditional one-year guarantee fixed deferred annuities, immediate annuities, and institutional products. It also offers funding agreements and group annuities. The company was incorporated in 2008 and is headquartered in Pembroke, Bermuda.

Let's start with why I originally rejected this stock. What did not sit well with me is its low past PE ratio. Despite ATH was improving its EPS from 2017 to the end of 2019 its stock price failed to appreciate. It rather stayed in the slow downtrend channel. At the same time, its EPS grew which resulted in a declining PE ratio which dropped to as 4 to 6 range before COVID drop. Most recently, following the COVID drop the stock price recovered, and the stock is trading at a PE Ratio of 8.6x compared to the US Insurance industry average of 14.4x.


This failure of the stock price to grow when EPS was increasing is a red flag for me which I could not explain.



As you can see below, ATH has been growing its revenues very quickly with only a down moment in 2018. Thus it grew its EPS from $3.21 all the way to $11.4 in 2019. Even if we take a very conservative PE ratio or 12 we would have expected the price for ATH to be in the range of

$136. The price at the moment was only $45 to $50. However, to be fair, the price did start to move up at the end of 2019 and seem to have broken the past trend. Haven't it been for COVID drop we might have seen the market to adjust the price to fair evaluation.

Source: https://www.marketwatch.com/investing/stock/ath/financials/income/quarter


Looking at the performance over the more recent 5 quarters, ATH seems to have recovered nicely in the quarter ending June 30th. However, in Q3 (ending Sept 30 the revenue did slump a bit). Nevertheless, EPS for the past 2 quarters was strong as ATH delivered a combined EPS of $7.34 in the past 2 quarters. If it continues on the same path it could deliver over $14 in EPS in 2021. However, this is on the high end. Analysts are predicting EPS of $7.157 for 2021 and $8.56 for 2022.

The reason for lower than hoped EPS is the expected decline in the revenue of ATH. However, please note EPS is still very high for the current price.

Source: https://simplywall.st/stocks/us/insurance/nyse-ath/athene-holding


So, yes, revenue declined in 2020. In 2020 there is no expectation for a V-shape recovery in sales. Rather, analysts are predicting a slow growth in ATH's from the beginning of 2021.


Looking forward, if analysts are predicting EPS of $8.56 for 2022 and we take the current industry's PE ratio of 14 we should expect the price for ATH stock to reach $120.

There are 13 ratings for ATH stock and analysts have an average target price of $52.58. The highest target price is $76 and the lowest target price is $41.


That level of earnings at the current price would mean a PE of just 5.14 (current price of $44 divided by $8.56).


The stock price has recently gapped when ATH delivered $3.16 in earnings in November vs. expected $1.1. More recently the stock price has been building cup-and-handle formation. The breakout above $47 would be a buy signal. However, the next potential resistance might be standing at $50 - the high point before COVID.

On a positive note, ATH is expecting continued growth in gross invested assets:


Source: https://irathene.q4cdn.com/886888837/files/doc_financials/2020/q3/ATH-3Q20-Earnings-Presentation_v.F.pdf


In summary, ATH company seems to be a promising one with great potential for growth and is quite undervalued. However, I was not able to find the reasons for the stock being undervalued for the 4 years prior to COVID. There is a risk that investors are counting in some negatives from the structure of the company, its financial risks that I was not able to uncover.


If you were watching the stock between 2017 and 2019 I ask you to weigh in on this stock and my analysis and offer your opinion in the comments.


Personally, I will go in with half position when the breakout from the cup-and-handle formation is confirmed.

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