Banking & Finance

Analysts Want to Keep Riding the Apollo Wave on Private Equity Gains

Apollo Global Management LLC (NYSE: APO) traded higher in the past week after earnings. There is also a follow-on move taking place that took the stock to 52-week highs. Apollo reported earnings of $0.98 per unit, versus a consensus estimate of $0.80. Merrill Lynch had among the highest estimates, $0.96 per unit, and Apollo beat that hurdle.

After issuing a positive outlook, Merrill Lynch said one driving force was the most recent successful initial public offering of Athene. The private equity group is also signaling that its managed funds deployed a record amount of capital, which the group indicated should generate significant returns for 2017 and beyond.

Apollo’s credit and private equity units did well under management fees and performance fees, and real estate showed positive gains. The group also continues to see opportunities for investing in undervalued credit classes and in traditional private equity.

Apollo’s distribution was also put at $0.45 per unit. Its distribution history has been up and down, seen as follows (most recent quarters first): $0.35, $0.37, $0.25, $0.28, $0.35, $0.42, $0.33, $0.86 and $0.73.

24/7 Wall St. has tracked multiple analyst upgrades, price hikes or other positives for Apollo. The upgrades and analysts comments were numerous.

Merrill Lynch raised its rating to Buy from Neutral and raised its price objective to $27 from $23. It sees a rising distribution ahead. Merrill Lynch’s investment rationale said:

Apollo is one of the leading alt asset management franchises in the industry that has a value driven approach, industry leading performance, and has expanded beyond its traditional strength in private equity to drive healthy asset growth. We expect fund returns, fee earnings, and distributions to improve and we see upside potential in the stock.

JMP Securities reiterated its Outperform rating and raised Apollo’s target to $30 from $27. The view is that there is compelling momentum in Apollo after an inflection year.

Wells Fargo raised its rating to Outperform from Market Perform.

Other key analyst calls were seen as follows:

  • Oppenheimer reiterated its Outperform rating and raised its price target to $28 from $27.
  • Goldman Sachs reiterated its Buy rating and raised its target to $25 from $24.
  • Morgan Stanley maintained an Equal Weight rating, but it raised its target from $20 to $21.
  • Deutsche Bank has a Hold rating, but raised its target to $23 from $21.
  • S&P has a Hold rating, but it raised its 12-month target price by $5 to $24.

If any of this post-earnings and distribution sounds like too much of a surprise, there is a chance that other private equity giants will be attractive as well. Oppenheimer’s Chris Kotowski raised ratings and views for all of 2017 in the private equity sector. He expects that the climate fostering the mega-rally in banks and financial services will be great for private equity.

Apollo Global’s units were trading at $21.70 last Thursday, and they were higher to $22.13 as trading volume spiked up to almost 1.8 million units on Friday. They were last seen trading up 1.1% at $22.37 on Monday. The 52-week range is now $12.35 to $22.45.

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