Setting Up The Valuation Picture For AXIS Capital Holdings
AXIS Capital Holdings might be on your radar if you are asking whether the current share price lines up with the underlying value of the business, and this article is built to help you answer exactly that question.
At a last close of US$98.91, the stock has seen a 0.7% return over the last 7 days, a 3.6% decline over 30 days, a 5.1% decline year to date, a 1.1% return over 1 year, and very large gains of 93.7% over 3 years and 122.0% over 5 years.
Recent coverage of AXIS Capital has focused on how the share price performance fits into the broader insurance sector and what that might mean for investor sentiment. This helps frame whether current levels look stretched or conservative. This article uses that context to focus on what the market is currently paying for AXIS Capital relative to standard valuation checks.
Those checks currently give AXIS Capital a valuation score of 6 out of 6. The sections that follow will walk through what that means using common approaches like multiples and discounted cash flow, before closing with a way to bring all these valuation signals together more effectively.
Approach 1: AXIS Capital Holdings Excess Returns Analysis
The Excess Returns model looks at how much value AXIS Capital Holdings can create above the return that shareholders are estimated to require. It starts with what the company can earn on its equity base compared with its cost of equity, then projects those surplus returns into the future and adds them to the current book value.
For AXIS Capital, book value is estimated at US$78.32 per share, with a stable earnings figure of US$15.30 per share, based on weighted future Return on Equity estimates from 6 analysts. The average Return on Equity is 15.95%, while the cost of equity is estimated at US$6.69 per share. That leaves an excess return of US$8.60 per share. The model also uses a stable book value estimate of US$95.93 per share, again sourced from weighted future analyst estimates.
When these excess returns are capitalized, the Excess Returns valuation arrives at an intrinsic value of about US$337.04 per share, implying the stock is 70.7% undervalued relative to the recent share price of US$98.91.
Result: UNDERVALUED
Our Excess Returns analysis suggests AXIS Capital Holdings is undervalued by 70.7%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.
Approach 2: AXIS Capital Holdings Price vs Earnings
For a profitable insurer like AXIS Capital Holdings, the P/E ratio is a useful shorthand for what the market is currently willing to pay for each dollar of earnings. This is often how investors compare established, earnings-generating companies.
What counts as a normal or fair P/E usually reflects how fast earnings are expected to grow and how risky those earnings appear. Higher expected growth and lower perceived risk tend to support a higher P/E, while slower growth or higher risk often point to a lower P/E.
AXIS Capital is currently trading on a P/E of 7.48x, compared with an Insurance industry average P/E of about 10.86x and a peer group average of 10.99x. Simply Wall St’s Fair Ratio for AXIS Capital is 12.52x, which represents the P/E that would be expected given its earnings profile, industry, profit margins, market capitalization and risk characteristics.
This Fair Ratio can be more informative than a simple comparison with peers or the industry because it is tailored to AXIS Capital’s own growth outlook, risk factors and financial quality, rather than assuming all insurers should trade at similar multiples. Since the Fair Ratio of 12.52x is above the current P/E of 7.48x, the P/E-based assessment points to the shares looking undervalued on this metric.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your AXIS Capital Holdings Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as simple stories you create about AXIS Capital Holdings, where you link your view on its business, your assumptions for future revenue, earnings and margins, and the fair value that falls out of those numbers. All of this sits inside an easy tool on Simply Wall St’s Community page that updates automatically when new news or earnings arrive. You can then compare your Fair Value with the current price and decide how comfortable you are. For example, you might lean closer to the most optimistic community view, which might sit around the US$141 analyst target, or the most cautious view, closer to US$110. You can also see exactly which assumptions are doing the heavy lifting in each case.
Do you think there's more to the story for AXIS Capital Holdings? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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