Our latest focus stock is a leading global investment firm; its alternative asset management businesses include the management of private equity funds, real estate funds, and hedge fund solutions, explains Ken Leon, equity analyst with S&P Capital IQ in The Outlook.
With $311 billion in assets under management, Blackstone Group (BX) also provides a wide range of financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory, and fund placement services.
In recent years, Blackstone’s strategy has been focused on expanding its geographical presence and building businesses in new areas, such as fixed income, equity strategies, hedge fund solutions, capital markets, infrastructure, and natural resources.
We believe that these new efforts build on its core principles and industry expertise, enabling the company to leverage the intellectual capital and synergies in its businesses and to capitalize on a broader range of opportunities.
Blackstone’s success has been driven by its strong track record of providing consistent returns to institutional investors. Besides strong execution, we see an improving market for fundraising and investing.
Following revenue growth of 14% in 2014, we see mid-to-upper single digit growth in both 2015 and 2016, reflecting continued growth in fee revenues and performance fees.
Revenues are dependent on management fees on invested property and performance fees that are expected on the realization of investments either through a sale or an IPO.
Blackstone is adept at managing new fundraising for private investments as well as timing the sale of assets.
Risks are tied to the business cycle in many industries in which Blackstone invests, along with global macroeconomic risks. Further, this is a complex company that has transparency risks, we think.
Headwinds during the 2008 financial crisis have shifted to tailwinds, in our opinion, for private equity and real estate investing.
Our $49 target price is based on a forward P/E of 12.1x our 2015 EPS estimate. The shares have a current dividend yield of close to 6%.
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