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  • The Carlyle Group LP (NASDAQ: CG) shares are flat year-to-date, while having lost 45 percent since January 5.
  • Credit Suisse’s Craig Siegenthaler downgraded the rating on the company from Outperform to Neutral, while maintaining the price target at $18.
  • The downgrade reflects the analyst becoming “increasingly selective” among alternative asset managers in view of the higher risk of a US bear market.

“Given the aging vintage of the current economic cycle, we continue to become more selective/defensive across the asset manager vertical,” analyst Craig Siegenthaler wrote. He added that Carlyle was among “the most offensive alternative asset manager stocks” because the company had:

  1. A large accrued carry balance
  2. A high profit composition from p-fees
  3. A business weighting towards private equity and real assets

Siegenthaler noted that Carlyle’s stock could have significant downside in the next US bear market, especially compared to defensive plays like Oaktree Capital Group LLC (NYSE: OAK), Apollo Global Management LLC (NYSE: APO) and Ares Management LP (NYSE: ARES).

The analyst expects the company’s cash EPS and dividend levels to decline in 2016, from the cyclical peak levels achieved in 2014 and 2015, provided the market conditions remain normal. Carlyle invested only $6-$7B of capital in 2015, below the $10B invested in 2014, and short of the average of $8-$9B in the previous couple of years.

“We think a continuation of the less attractive investing environment, plus lower monetization opportunities from older vintage funds could pressure cash earnings, even if market conditions remain normal,” the Credit Suisse report noted.

Siegenthaler expects the company to report weak quarterly results, due to low monetizations, negative real asset and credit marks, weak investing activity, and soft fund raising activity. Since Carlyle completed several key fund raises in 3Q15, there could be a sequential decline in capital raising in 4Q15.

Latest Ratings for CG

May 2018CitigroupMaintainsBuyBuy
Apr 2018Morgan StanleyMaintainsOverweightOverweight
Apr 2018Deutsche BankMaintainsHoldHold

View More Analyst Ratings for CG
View the Latest Analyst Ratings

Posted-In: Craig Siegenthaler Credit SuisseAnalyst Color Downgrades Analyst Ratings


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