Breaking Down Equitable Holdings, Inc. (EQH) Financial Health: Key Insights for Investors

Understanding Equitable Holdings, Inc. (EQH) Revenue Streams

Understanding Equitable Holdings, Inc.’s Revenue Streams

Primary Revenue Sources: The revenue streams of Equitable Holdings, Inc. include segments such as Individual Retirement, Group Retirement, Asset Management, Protection Solutions, Wealth Management, and Legacy. The following table summarizes the revenue by segment for the three and nine months ended September 30, 2024, compared to the same periods in 2023.

Year-over-Year Revenue Growth Rate: The total revenues for the three months ended September 30, 2024, were $3,076 million, reflecting a decrease of 15.1% from $3,624 million in the same period of 2023. For the nine months ended September 30, 2024, total revenues increased by 5.5% to $8,816 million compared to $8,358 million for the same period in 2023.

Contribution of Different Business Segments: For the nine months ended September 30, 2024, the largest contributor to revenue was the Asset Management segment, generating $3,230 million, followed closely by Individual Retirement at $2,678 million. The breakdown illustrates the importance of these segments in overall revenue.

Significant Changes in Revenue Streams: Notable changes in revenue streams include:

• Individual Retirement revenue increased by 25.7% year-over-year for the nine months ended September 30, 2024.
• Group Retirement revenue rose by 15.3% during the same period.
• Asset Management experienced a 6.1% increase in revenue, reflecting growth in assets under management.
• Protection Solutions and Wealth Management segments also saw revenue growth of 5.3% and 15.1%, respectively.

Conclusion: The analysis of Equitable Holdings, Inc.'s revenue streams reveals a diversified portfolio with significant contributions from various segments, each showing distinct growth patterns. The shift in revenue dynamics indicates a strategic focus on enhancing performance across key areas of the business.

A Deep Dive into Equitable Holdings, Inc. (EQH) Profitability

Profitability Metrics

Gross Profit Margin: As of September 30, 2024, the gross profit margin stands at 11.5%, down from 31.3% in the same period of 2023.

Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024, is -0.5% compared to 40.7% for the same period in 2023.

Net Profit Margin: The net profit margin is recorded at 0.7% for the three months ended September 30, 2024, a significant decrease from 31.3% in 2023.

Trends in Profitability Over Time

In the last four quarters, the net income has fluctuated significantly:

• Q1 2024: Net income of $1,946 million
• Q2 2024: Net income of $808 million
• Q3 2024: Net income of $26 million

This trend indicates a downward trajectory in profitability, with the most recent quarter showing a stark reduction in net income compared to previous periods.

Comparison of Profitability Ratios with Industry Averages

The following table compares the profitability ratios of the company with industry averages:

Analysis of Operational Efficiency

The operational efficiency has shown concerning trends, particularly in cost management:

• Operating costs have increased to $3,090 million for the nine months ended September 30, 2024, compared to $2,149 million in 2023.
• Policyholders’ benefits have also increased, reaching $2,007 million in 2024 versus $2,107 million in 2023.

These rising costs have contributed to declines in gross and operating margins, indicating decreased operational efficiency and potential challenges in cost management strategies moving forward.

The total revenues for the nine months ended September 30, 2024, were $8,816 million, compared to $8,358 million in 2023, reflecting a marginal increase in revenue but insufficient to offset increasing operational costs.

Debt vs. Equity: How Equitable Holdings, Inc. (EQH) Finances Its Growth

Debt vs. Equity: How Equitable Holdings, Inc. Finances Its Growth

Overview of Debt Levels

As of September 30, 2024, the company's total short-term debt was $0 million, with prior short-term debt reported at $254 million as of December 31, 2023. The long-term debt consisted of:

The total long-term debt as of September 30, 2024, was $3,831 million, reflecting a slight decrease from $4,021 million reported on December 31, 2023.

Debt-to-Equity Ratio

The debt-to-equity ratio is a crucial measure of financial leverage. As of September 30, 2024, the company's debt-to-equity ratio stood at 0.43, which is below the industry average of approximately 0.5 to 0.6. This indicates a conservative approach to leveraging compared to its peers in the financial services sector.

Recent Debt Issuances and Credit Ratings

In 2024, the company issued $600 million in long-term debt while repaying $570 million. The net external debt activity resulted in a total increase of $30 million. The company's credit rating remains stable, with major agencies rating it as BBB, indicating a moderate level of credit risk.

Balancing Debt Financing and Equity Funding

The company employs a balanced strategy between debt financing and equity funding. As of September 30, 2024, total equity attributable to the company was $8,872 million. The ongoing share repurchase program, which has approximately $706 million authorized capacity remaining, reflects the company's commitment to enhancing shareholder value while managing its capital structure effectively.

Assessing Equitable Holdings, Inc. (EQH) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of September 30, 2024, stands at 1.95, indicating a healthy liquidity position. The quick ratio is reported at 0.52, suggesting potential challenges in meeting short-term liabilities without relying on inventory.

Analysis of Working Capital Trends

As of September 30, 2024, the working capital is approximately $3.22 billion. This reflects a decrease from $3.28 billion as of September 30, 2023, indicating a slight contraction in the company's operational liquidity over the year.

Cash Flow Statements Overview

The cash flows from operating activities for the nine months ended September 30, 2024, show a net cash provided of $1.606 billion, compared to $184 million in the same period in 2023. This significant increase highlights improved operational efficiency.

In terms of investing activities, cash used was $10.319 billion, reflecting substantial investments, primarily in fixed maturities and mortgage loans. Financing activities resulted in a net cash outflow of $1.267 billion, driven by share repurchases and dividend payments.

Potential Liquidity Concerns or Strengths

Despite the healthy operating cash flow, the low quick ratio may raise concerns about immediate liquidity. However, the substantial cash flow from operations and a net increase in highly liquid assets to $2.426 billion as of September 30, 2024, suggest that the company can manage its short-term obligations effectively.

Is Equitable Holdings, Inc. (EQH) Overvalued or Undervalued?

Valuation Analysis

To determine whether Equitable Holdings, Inc. (EQH) is overvalued or undervalued, we will analyze key valuation ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA). We will also examine stock price trends over the past year, dividend yield and payout ratios, along with analyst consensus on the stock’s valuation.

Price-to-Earnings (P/E) Ratio

The P/E ratio for EQH is calculated as follows:

• Current stock price: $41.50
• Earnings per share (EPS) for the trailing twelve months: $5.47
• P/E Ratio = Stock Price / EPS = 7.57

Price-to-Book (P/B) Ratio

The P/B ratio is another essential metric:

• Book value per share: $39.80
• P/B Ratio = Stock Price / Book Value per Share = 1.04

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

For the EV/EBITDA ratio:

• Market capitalization: $14.6 billion
• Total debt: $5.2 billion
• Cash and cash equivalents: $1.0 billion
• EBITDA (last twelve months): $2.1 billion
• Enterprise Value = Market Cap + Total Debt - Cash = $18.8 billion
• EV/EBITDA Ratio = Enterprise Value / EBITDA = 8.95

Stock Price Trends

Over the last 12 months, EQH has shown the following stock price trends:

• 12-month high: $45.80
• 12-month low: $28.90
• Current stock price: $41.50
• Percentage change over the year: +12.5%

Dividend Yield and Payout Ratios

Dividend metrics for EQH include:

• Annual dividend per share: $0.88
• Current dividend yield: 2.12%
• Payout ratio: 16.1%

Analyst Consensus on Stock Valuation

The consensus among analysts regarding EQH is as follows:

• Buy ratings: 6
• Hold ratings: 4
• Sell ratings: 1
• Average target price: $45.00

Key Risks Facing Equitable Holdings, Inc. (EQH)

Key Risks Facing Equitable Holdings, Inc.

Internal and External Risks

Equitable Holdings, Inc. faces various internal and external risks that can significantly impact its financial health. Key risks include:

• Industry Competition: The company operates in a highly competitive insurance and financial services industry, with competitors constantly innovating and offering new products.
• Regulatory Changes: Changes in insurance regulations and capital requirements can affect operational flexibility and profitability. For instance, Equitable America has Ordinary Dividend capacity of $441 million for 2024.
• Market Conditions: Fluctuations in capital markets can affect investment income and overall business performance. In 2024, net income (loss) attributable to Holdings decreased from $1.1 billion in Q3 2023 to a loss of $134 million in Q3 2024.

Operational, Financial, and Strategic Risks

The recent earnings reports highlight several operational and financial risks:

• Net Derivative Losses: Increased by $1.3 billion due to higher equity market appreciation in Q3 2024 compared to Q3 2023.
• Market Risk Benefits: Increased by $896 million primarily due to a decrease in interest rates.
• Interest Credited to Policyholders: Increased by $152 million mainly due to growth in SCS account values in the Individual Retirement segment.
• Commissions and Distribution Costs: Increased by $80 million due to higher payments for the distribution of AB mutual funds.

Mitigation Strategies

The company has implemented various strategies to mitigate risks:

• Hedging and Reinsurance Programs: Designed to mitigate economic risks associated with equity markets and interest rates.
• Share Repurchase Program: Authorized a new $1.3 billion share repurchase program to enhance shareholder value and manage capital effectively.
• Investment Diversification: The company has diversified its investments across various asset classes to minimize risk exposure.

Future Growth Prospects for Equitable Holdings, Inc. (EQH)

Future Growth Prospects for Equitable Holdings, Inc.

Analysis of Key Growth Drivers

Equitable Holdings, Inc. is positioned to capitalize on several growth drivers. Key among these are product innovations, market expansions, and strategic acquisitions.

• Product Innovations: The company has been proactive in enhancing its product offerings, particularly in the Protection Solutions segment, which includes life insurance and employee benefits. For the nine months ended September 30, 2024, operating earnings in this segment increased to $154 million from $23 million in the prior year.
• Market Expansions: Assets under management (AUM) reached $805.9 billion as of September 30, 2024, up from $725.2 billion at the end of 2023, representing an increase of 11.1%.
• Acquisitions: The company has engaged in strategic acquisitions, such as purchasing AB Holding units, which enhances its service capabilities and market reach.

Future Revenue Growth Projections and Earnings Estimates

Revenue growth is projected to continue, driven by the expansion of service offerings and market presence. The net investment income for the nine months ended September 30, 2024, increased to $775 million from $719 million in the same period in 2023.

Operating earnings are expected to grow, with estimates indicating a potential increase to $490 million for the full year 2024, compared to $301 million in 2023.

Strategic Initiatives or Partnerships

The company has established several strategic initiatives aimed at fostering growth. Notably, it has entered into partnerships to enhance its investment management capabilities. For instance, cash distributions from non-insurance subsidiaries were $519 million during the nine months ended September 30, 2024.

Competitive Advantages

Equitable Holdings benefits from several competitive advantages that position it favorably for future growth:

• Diverse Product Portfolio: The company offers a wide range of financial products, including variable and indexed universal life products, which cater to various consumer needs.
• Strong Market Position: With over $805.9 billion in AUM, Equitable Holdings commands a significant share of the market, enhancing its negotiation power with suppliers and clients.
• Robust Financial Health: As of September 30, 2024, total equity attributable to Holdings was $3,385 million, reflecting a solid balance sheet.

These elements collectively enhance the company's potential for sustained growth and profitability in the coming years.

Updated on 16 Nov 2024

Resources:

1. Equitable Holdings, Inc. (EQH) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Equitable Holdings, Inc. (EQH)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Equitable Holdings, Inc. (EQH)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.