Equitable Holdings Preferred Shares: Still Holding Off Despite Higher Yields

Equitable Holdings' preferred shares, while offering higher yields amid rising rates, present significant balance sheet risks, notably unrealized losses on fixed maturity investments and an extremely high debt-to-equity ratio of 37.6:1. S&P's BBB- rating and negative credit outlook place these shares near junk status, increasing the potential for further yield spikes. Despite healthy net income relative to preferred dividends, persistent credit and balance sheet concerns lead to a recommendation against investing in these preferred shares.

Analysis

Equitable Holdings' (EQH) preferred shares present a high-risk profile despite offering elevated yields due to the rising interest rate environment. The primary concern is the company's severe balance sheet stress, underscored by an extremely high debt-to-equity ratio of 37.6 to 1 and the presence of unrealized losses on its fixed maturity investments. This financial vulnerability is formally recognized by S&P's BBB- credit rating, which carries a negative outlook and positions the preferred shares on the brink of non-investment grade status. A potential downgrade could trigger further yield spikes and associated price declines. While current net income is reported to be sufficient to cover preferred dividend payments, this single positive factor is largely overshadowed by the substantial credit and leverage risks.

Key Decisions for Investors

• Investors should exercise extreme caution with Equitable Holdings' preferred shares (EQH.PA, EQH.PC) due to the combination of exceptionally high leverage and a credit rating that is one notch away from junk status.
• The primary risk to monitor is a potential credit downgrade by S&P; a change from the current BBB- rating or negative outlook would likely act as a catalyst for a significant drop in the shares' value.
• While the high yield is attractive, investors must weigh this income potential against the material risk of capital loss stemming from the company's precarious balance sheet and negative credit watch.