Alternative asset managers are one of the few financial sectors that have performed well since the bank selloff last March.
Private-equity firms such as
Blackstone
and
KKR
—as well as private credit specialists such as
Ares Management
—saw their shares rise 75% in 2023, while the stocks of traditional managers and banks lost ground.
Alts are priced for perfection, wrote Morgan Stanley analyst Michael Cyprys on Wednesday, as he previewed the group’s December quarter reports.
The stocks have already priced in a 2024 recovery in capital markets and a decline in interest rates. Cyprys is selectively optimistic, and he thinks shares of Blackstone and real estate specialist
Bridge Investment Group Holdings
could still have some upside.
So does Wells Fargo analyst Finian O’Shea, who was cautiously upbeat in his preview note Monday. In addition to Blackstone and Bridge, he has Overweight ratings on KKR and
Apollo Global Management.
Blackstone led off earnings Thursday, with December quarter earnings above forecasts at $1.11 a share. That was 4% higher than year-earlier levels, but a challenging year in the firm’s big real estate portfolio dragged full-year 2023 profit down 24%, to $3.95 a share. Investors are focusing on 2024 now, and Blackstone stock rose 3% on Thursday’s report, to $123.49.
When KKR reports on Feb. 6, O’Shea expects to see a December quarter profit of 96 cents a share. With a 2024 earnings estimate of $5.05, he thinks an 18.5-times multiple will lift the private-equity firm’s shares 10%, to his target of $93.
Apollo reports two days later, on Feb. 8. O’Shea predicts December earnings will be $1.76 a share. His forecast for $8.10 a share in 2024 would lift the stock 12%, to $110, with a 13.5-times multiple.
Ares,
which also reports Feb. 8, enjoys a 25-times earnings multiple like Blackstone’s. At $120, the stock looks fairly valued, according to Cyprys.
O’Shea’s last buy recommendation, Bridge Investment, will report on Feb. 28. He expects 19 cents a share for December, and $1 for 2024. With a 12-times multiple, he thinks Bridge stock can rise 20%, to $12.
Cyprys also sees good upside in Bridge, with a $13 target. The firm’s real estate focus has led investors to stick it with a valuation as low as that of asset-ebbing traditional money managers. But Bridge has attractive holdings in apartments and warehouses, Cyprys notes, and is growing its assets and management fees.
So even though the alt stocks have had a run, Cyprys hews to his thesis that the group is coming into a golden age, as their product offerings and clientele broaden.
“We retain conviction on the longer-term potential for double-digit growth of the $10 trillion private market industry,” Cyprys wrote.
Write to Bill Alpert at [email protected]
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