Carlyle Group Valuation Has 'Significant' Room To Expand, Credit Suisse Upgrades

Higher Quality FRE To Expand

Analysts Craig Siegenthale, Ari Ghosh and Jordan Friedlander estimate the higher quality FRE-related earnings to expand by two to three times 2017 levels by 2019–20, as fundraising significantly accelerates in the second half of 2017 and generates record fundraising activity in 2018.

These raises, according to the analysts, are also important for valuation, which is at a discount to peers due to its lower contribution of FRE, less diversification by business and negative FE AUM growth.

Accrued Carry To Begin To Build

Credit Suisse expects the company's latest fund vintage investments to generate sizeable returns. The firm is of the view that this will cause the company's lower DE results in 2017 to also accelerate into 2019.

First-quarter 2017 results provided evidence that CG's accrued carry can start to build due to near record ENI levels, which drove a 34-percent increase in its accrued carry balance," the firm said.

Valuation Expansion Opportunity

Credit Suisse believes there is a significant valuation expansion opportunity related to CG specific fundamental improvements, U.S. Alt industry re-valuation potential, and C-corp conversion.

Also, the firm said now is the time to buy the CG stock, as it expects a sharp improvement in key fundamental metrics over the next 12 months.

As such, Credit Suisse upgraded shares of the Carlyle Group to Outperform from Neutral, with a $23 price target.

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