Bank of America has named European insurance giant AXA as one of its top picks in the insurance sector, given its attractively low valuation and generous dividends. The investment bank believes AXA shares are a bargain because it is predicted to earn much more than its stock price suggests. Andrew Sinclair, analyst at Bank of America, said in a note to clients on June 5 that AXA was currently trading on 7 times its estimated earnings in 2024, with a 9.2% total capital return yield. This yield consists of a 6.8% dividend yield plus a 2.4% yield from the company buying back its own shares. AXA’s valuation is said to be one of the lowest in its sector, even with the prediction of a steadily increasing dividend yield. Bank of America believes that AXA’s shares could trade at 9.4 times its estimated earnings in 2024, implying a total return potential of about 30%, inclusive of a 7% dividend yield. Shares of the French multinational have risen by 3.8% so far this year and currently offer a dividend yield of 6.2%. Bank of America expects the Paris-listed shares to increase 30% to €35 ($37.5) over the next 12 months and U.S.-listed stock to go up to $37.59. CS-FR 1Y line The Wall Street bank’s analyst said AXA is looking even more attractive after changes in accounting rules, known as IFRS17. This new system, which the bank has already adopted in its predictions, reduces uncertainty about future earnings. It now sees the company’s earnings per share growing 7% annually from 2023 to 2026. At the same time, the dividends per share are expected to increase by 9% annually from 2022 to 2025. Even with these increasing payouts to investors and a plan to buy back €1.5 billion of its own shares each year, Bank of America believes that AXA will still be able to increase its available cash from €4.5 billion at the end of 2022 to €5.5 billion by the end of 2025. Sinclair’s report also said there was nothing overly concerning about AXA’s exposure to North Atlantic hurricane season. The company’s XL unit, which used to have significant exposure to natural disaster events, has drastically reduced its risk, according to the BofA analysts. As a result, AXA’s earnings are unlikely to be hit hard by any potential hurricane damage. In addition, AXA’s property and commercial insurance business has been seeing a steady expansion in margins, according to the investment bank. This is due to pricing outpacing claims inflation, a positive trend expected to continue into 2023.
