Shares Of Private Equity Firm KKR Slump as Net Income Declines in Q4

Shares of the U.S.-based investment firm KKR & Co fell over 6% on Tuesday after the company said its profit declined in the fourth quarter despite its earnings more than doubled, buoyed by strong asset sales from its private equity portfolio.

The company that manages multiple alternative asset classes said its net income declined to $507.558 million, or $0.82 per share, compared to $1.479 billion, or $2.46 per share registered a year ago. KKR’s adjusted earnings per share came in at $1.59, beating the market expectations of $1.21 per share.

The private equity firm said its management fees surged by 44% to $2.1 billion for the year. Growth has been driven by record fundraising activity as organic AUM new capital raised over the year was $121 billion, compared to $44 billion in 2020.

The company reported record after-distributable earnings, which represent the cash used to pay dividends to shareholders, of $1.4 billion compared with $544.1 million a year earlier, Reuters reported.

The company said its assets under management (AUM) rose to $471 billion, up 87% year-over-year, with $19 billion of organic new capital raised in the quarter and $121 billion for the year.

KKR stock fell over 6% to $66.30 on Tuesday. The stock slumped over 9% so far this year after surging more than 80% in 2021.

Analyst Comments

“Strong near-term growth with fundraising supercycle and GA accretion coming into earnings, but we see this reflected in the price at current valuation for a business model with greater earnings contribution from the balance sheet (~40%). While strong investment performance could drive upward estimate revisions, we have less visibility on more episodic investment income gains,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“Mgmt’s increased focus on expanding the platform with adjacent strategies and scaling successor funds should drive higher fee-related earnings (FRE).”

KKR Stock Price Forecast

Eight analysts who offered stock ratings for KKR in the last three months forecast the average price in 12 months of $88.81 with a high forecast of $93.50 and a low forecast of $83.00.

The average price target represents a 34.01% change from the last price of $66.27. Of those eight analysts, six rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $83 with a high of $115 under a bull scenario and $28 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the investment firm’s stock.

Several analysts have also updated their stock outlook. Wells Fargo cut the target price to $86 from $90. Oppenheimer lowered the target price to $88 from $89. Deutsche Bank slashed the target price to $90 from $94. Citigroup lifted the price target to $93.5 from $92.

Technical analysis suggests it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator gives mixed signals.

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