Heard Of Carlyle Group? It Might Be Morgan Stanley's Favorite Asset Manager

In a report published Friday, Morgan Stanley analyst Michael J. Cyprys maintained an Equal-Weight rating on The Carlyle Group LP CG, with a price target of $33, saying that there could be near-term upside to the company's shares.

Carlyle shares plummeted 5.5 percent over the past three days. This pullback appears disconnected from the company's fundamentals, with Carlyle's PE portfolio rising +12 percent QTD and the company monetizing 74c in portfolio exits in just two months.

The company's near-term risk/reward appears "attractive" in view of the robust cash generation QTD and "continued strong performance in their public portfolio set the stage for improving cash monetization outlook," Cyprys said, while adding, "We view the sell-off as more technical in nature, in part a function of the low float."

Cyprys expects Carlyle's 2Q results to be better than what the consensus expects and Morgan Stanley would be "buyers into 2Q results in July."

Cyprys commented, "We see strong organic growth potential for alts, & are bullish on alternative asset mgrs based on portfolio harvesting that will boost cash earnings & strong secular fundraising tailwinds."

In the report Morgan Stanley noted the investment thesis on various US asset managers:
Overweights:

• Blackstone Group LP BX - This company appears to be "best positioned in terms of harvesting cycle with recent acceleration of real estate exits, capital raising ($123B for 2015-16), and portfolio laddering." The price target is $50.
• KKR & Co. L.P. KKR - This company's "distinctive balance sheet centric business model has the potential to deliver much higher cash earnings and ROE." The price target is $29.
• Oaktree Capital Group LLC OAK - This company has "greater business scaling under new management and a later harvesting cycle skew." The price target is $67.

Equal-weights:

• Carlyle - The stock has "compelling near-term upside but relatively less attractive risk/reward vs our Overweights on a longer 12-month view."
• Ares Capital Corporation ARCC - The company has "strong growth prospects" but these appear "largely priced in."
• Apollo Global Management LLC APO - The company's near-to-medium term cash earnings appears "challenged," but this is "largely in the price."