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Bull of the Day: Athene Holding (ATH)

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Athene Holding (ATH - Free Report) is a $9 billion retirement services company that issues, reinsures, and acquires retirement savings products. Through a variety of channels, the company sources long-term liabilities and then utilizes its expertise to invest in a high quality portfolio, aided by its strategic relationship with the esteemed private equity group Apollo Global Management.
Founded in 2009, Athene is based in Bermuda where it is the largest life insurer in operation and the company has a US headquarters in West Des Moines, Iowa. With a financial strength rating of A (Excellent) from both S&P and A.M. Best, this mid-cap firm is consistently growing revenues at 20% and will hit $5 billion on the top line next year, while maintaining double-digit EPS growth. 
With a 52-week high near $54, the recent market correction brought ATH back down to a higher low vs the summer pullback to $43. The average analyst price target is over $60, with both Morgan Stanley and JPMorgan reiterating $64 targets in the past week.
For all these reasons, I bought this Zacks #1 Rank stock this week after it came up on a value screen I ran.
Q3 Earnings Light Up the Board Again
And the reason ATH became a Zacks #1 is because EPS estimates move smartly higher in the past week after a strong Q3 report.
Athene delivered quarterly earnings of $1.95 per share, beating the Zacks Consensus Estimate of $1.70 EPS by 15%. Adjusted for non-recurring items, the year-over-year comp registered growth of 65%. 
The company also beat earnings expectations in the prior quarter, with EPS of $1.48 vs $1.27, for a 16.5% surprise. With these two back-to-back strong quarters, here's what analysts have done with estimates in the past two months...
2018 EPS Consensus: +6.5% from $5.86 to $6.24
2019 EPS Consensus: +7.2% from $6.62 to $7.10
Athene, which belongs to the Zacks Life Insurance industry (top 25% of all industries), posted revenues of $1.07 billion for the quarter ended September 2018, missing the Zacks Consensus Estimate by 6.43%. This compares to year-ago revenues of $863 million. The company has topped consensus revenue estimates just once over the last four quarters.
But as mentioned earlier, the company stands poised to deliver 20.3% revenue growth this year and next, hitting records of $4.2 billion and just over $5 billion, respectively.
Analyst Reaction: All About Those Taxes
For investment firms like Athene, some of the biggest factors affecting profitability are tax rates and net investment earned rate (NIER).
Analyst had been modeling a 2018 tax rate of 8-9% and were expecting that to carry forward into 2019. Now it appears the company will be averaging an effective rate of 9-10%. Accordingly, some analysts raised their earnings estimates but lowered their price targets.
After raising Athene EPS estimates for this year and next, SunTrust analyst Mark Hughes noted "We reiterate our Buy rating based on our outlook for Athene to grow assets faster than its peers, while also generating meaningfully higher returns. We are trimming our price target to $59 (previously $66) or 1.1x book to reflect recent multiple compression across the Life Insurance sector."
Wells Fargo analyst Elyse Greenspan explained the bank's view after raising this year's profit projection to $6.25 and maintaining their 2019 and 2020 estimates of $7.30 and $7.80...
"Our estimate changes incorporate the Q3 upside and offsetting changes to our net investment earned rate (NIER) and invested asset assumption in 2019 and 2020. We are lowering our price target to $63 from $67."
Stable, Diversified, Hungry
Athene is a solid financial enterprise with portfolio strength and balance sheet flexibility that translates into seeking attractive new opportunities. 
Of note on the recent conference call were management comments about the current investment environment and their approach to the market. The leadership team emphasized that the company is a "beneficiary of financial market instability," which allows it to pursue higher-return opportunities.
In the October 31 press release, Athene CEO Jim Belardi said...
"With a current portfolio of more than $100 billion, ongoing organic growth capabilities, and identifiable inorganic opportunities in excess of $100 billion, we have an abundance of opportunity in front of us. Importantly, we remain patient and disciplined in our approach to building shareholder value, which has resulted in a 23% year-over year increase in adjusted book value to approximately $46 per share.” 
Disclosure: I own ATH shares for the Zacks TAZR Trader portfolio.
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