For this writer, global insurance giant AXA (OTCBB:AXAHY) has always felt like a company that struggles to keep everything on the straight and narrow. On those rare occasions when everything has come together, the results have been quite impressive. More often than not, though, there's a brush fire here or a lagging unit there and the share performance chops around wildly. With the stock close to intra-crisis lows, though, it's worth asking if these shares are worth another look today.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Recent Results Fairly Mediocre
Although AXA's first quarter update was positive overall relative to sell-side expectations, the absolute performance wasn't all that remarkable. Revenue was up about 2% as reported, or up 1% on a comp basis. Life and savings was pretty flat, though new life insurance business grew more than 5%. Property and casualty (P&C) was up about 3%, while asset management revenue dropped 7% due to ongoing outflows in assets under management.

SEE: Intro To Insurance

Continuing to Build the Global Footprint
It's fairly common for specialized P&C insurers or reinsurers to operate on a global basis; investors need look no further than names like Arch Capital (Nasdaq:ACGL), Berkshire Hathaway (NYSE:BRK.A) or Chubb (NYSE:CB), and even smaller companies like W.R. Berkley (NYSE:WRB) have targeted the international market as an important avenue to growth.

AXA takes that to a different level, though. AXA is a top-five insurance company in much of Western Europe, but also has a significant presence in the United States, Japan and emerging markets like Asia and Latin America. In fact, AXA recently agreed to buy HSBC's (NYSE:HBC) P&C business in Hong Kong, Singapore and Mexico in a deal that will make AXA the top P&C company in Hong Kong.

The arguments for international diversification are pretty straightforward. Not only is AXA taking advantage of markets where people have reached a level of economic prosperity where insurance makes sense, but operating on a global basis diversifies both loss risk and rate risk.

SEE: The Risks Of Investing In Emerging Markets

Still Reasons to Worry
AXA wouldn't be AXA if there still weren't some problems to worry about.

One of the things that significantly hurt the company back in the credit crisis days was the company's large variable annuity (VA) business. When the markets crashed, so too did this business. AXA has since fixed up its VA business and de-risked it to some extent, but now the company has to contend with large exposures to the sovereign debt of countries like Italy and Spain.

SEE: 10 Risks That Every Stock Faces

The Bottom Line
P&C insurance is a pretty good business, and one that can produce sustainable long-term returns provided the company has good underwriting policies, sound capital management policies and rational regulation. Life insurance, though, is a tougher business and one where it's hard to establish a defensible product differentiation. Likewise with asset management; many customers care about nothing more than performance after fees.

The value proposition in AXA really just comes down to whether or not you think AXA can deliver on the potential it has had for so many years. There's no reason to believe that AXA is going to suddenly find a stable path to long-term growth, but so long as the company's long-term performance can produce an average return on equity in the high single digits (which it has over the past decade), the stock looks significantly undervalued today.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!