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

• Och-Ziff Capital Management Group LLC OZM reported its third quarter financial, pretty much in line with expectations, results on November 3. Since that date, its stock price has fallen almost 25 percent – even after gaining almost 5 percent on Monday trading.
• While considerable 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 in a recent report.
• As such, they 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.

In a recent report, KBW analysts upgraded their rating on shares of 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 experts explicated 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,” they added.

In fact, 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.

Of course, the analysts continued, 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, the experts 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.