Market Overview

Och-Ziff Risk/Reward Is Attractive For Patient Investors Who Are 'Comfortable With Risks,' According To KBW

  • Och-Ziff Capital Management Group LLC (NYSE: OZM) shares have fallen about 25 percent since it reported third quarter results on November 3.
  • While uncertainties linger, the sharp decline in the stock price suggests that "the stock is now attributing little or no value to future incentive generation and/or pricing in sharp declines in AUM," KBW analysts Robert Lee and Ann Dai noted.
  • The analysts now think the risk/reward profile is "attractive for more patient investors comfortable with the risks," and have thus decided to lower their price target on the stock, but raise their rating to Outperform.

KBW analysts on Monday upgraded their rating on Och-Ziff from Market Perform to Outperform, while trimming their price target from $8.50 to $7.50. The new price target implies an upside potential of roughly 25 percent from current prices.

The analyst explained that, while risks and concerns about "over flow trends, diminished distribution expectations over the coming quarters, and continued concerns over the ongoing FCPA and related investigations" remain, the risk/reward profile has become attractive for patient investors. "At current levels, investors are not paying much, if anything, for long-term optionality."

The firm believes the value of management fee earnings added to its estimate of net accrued incentives results in ~$4.60-$5.30. "This suggests the stock is assigning little or no value to future incentive generation, or looked at another way, pricing in additional sharp declines in AUM," the report continued.

The analysts said that the company does still face some important challenges that could hurt its stock in the short and intermediate term. However, this is a long-term recommendation.

To sum up, KBW analysts went into some possible catalysts for the stock, including any amelioration in organic growth or Master Fund performance in the first months of 2016. "Most importantly, any resolution of the outstanding investigation would be a key catalyst so long as the impacts of any settlement were not prohibitive and/or otherwise damaging to the franchise," they added.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Latest Ratings for OZM

Jul 2019CitigroupMaintainsBuy
Feb 2018CitigroupMaintainsBuyBuy
Feb 2018CitigroupUpgradesNeutralBuy

View More Analyst Ratings for OZM
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