Morgan Stanley Turns Bullish On Apollo Global Management: Here's Why

After gaining nearly 75 percent over the past year, Apollo Global Management LLC APO's stock still has plenty of runway ahead in 2018, according to Wall Street's latest bullish analyst.

The Analyst

Morgan Stanley's Michael Cyprys upgraded Apollo Global's stock rating from Equal-weight to Overweight with a price target boosted from $32 to $42.

The Thesis

Shares of Apollo Global re-rated higher throughout 2017, but in 2018 the bullish case will continue due to the company's growth prospects, a credit business scaling faster than expected, new initiatives in the pipeline and the company entering a "portfolio harvesting stage," Cyprys said in the Wednesday note. (See the analyst's track record here.) 

Alternative asset managers like Apollo Global are operating in a "Goldilocks environment" that will be supportive of earnings growth, Cyprys said. 

Apollo is expected to double its credit business over the coming three years from its current $157 billion assets under management to roughly $300 billion by 2020, according to Morgan Stanley. Earnings from the credit segment can double from $471 million in 2017 to $954 million in 2020, the analyst said. Some of the initiatives Apollo is focusing on include infrastructure and real estate-themed products and vehicles, Cyprys said. 

Morgan Stanley's new $42 price target is based on a sum-of-the-parts valuation and implies an 11.5x multiple on 2019 estimated EPS, which is a 25-percent premium to the historical valuation of 9.2x. The company deserves a premium valuation given its accelerating growth and new initiatives, Cyprys said. 

Price Action

Shares of Apollo Global gained more than 1 percent early Wednesday morning.

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Posted In: Alternative Asset ManagersaltsAsset ManagersinfrastructureMichael CyprysMorgan Stanleyprivate equityAnalyst ColorUpgradesPrice TargetAnalyst RatingsReal Estate

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