On Tuesday, BofA Securities upgraded Apollo Global Management (NYSE:APO) stock from Neutral to Buy, adjusting the price target to $123 from the previous $124.
The decision follows a 21% decline in APO stock over a three-day period, influenced by the company's second-quarter earnings, broader economic data, a shifting interest rate forecast, and hedge fund risk reduction strategies.
The firm's analyst pointed out a shift in hedge fund sentiment, noting a decreased concentration in Apollo Global positions. This change is attributed to a growing emphasis on the characteristics of the captive insurance model, which is facing challenges such as rising liability costs and lower interest rates. Additionally, there are rising concerns over increasing competition in the U.S. annuity market.
In light of these factors, BofA Securities has revised its earnings per share (EPS) estimates for Apollo Global for the third quarter of 2024 and the full years of 2025 and 2026. The new EPS forecasts are set at $1.66, $7.97, and $9.18, respectively, down from the previous projections of $1.68, $8.07, and $9.29. This adjustment has led to a slight reduction in the price objective.
Despite the reduced EPS estimates, which sit 10% below the consensus, the firm applies a discounted price objective multiple of 15 times the expected earnings, excluding stock-based compensation. This is notably lower than the 20 to 30 times multiples applied to Apollo's peers. Even with this conservative approach, the new price target suggests a total return potential of 25% for Apollo Global Management's shares.
In other recent news, Apollo Global Management has reported record second-quarter fee-related earnings (FRE) of $516 million and robust subsidiary reported earnings (SRE) of $710 million. The company invested $70 billion and recorded inflows of $39 billion for the quarter.
Apollo successfully closed three private equity transactions and its hybrid equity vehicle has delivered positive returns for 16 consecutive quarters. Analysts at Citi, TD Cowen, and BMO Capital have revised their price targets for Apollo to $135, $137, and $123 respectively, while maintaining positive ratings. These adjustments come after Apollo's second-quarter results and a recalibrated outlook for the future.
Apollo's credit franchise had a strong quarter, and the company's strategic outlook remains positive, with expectations of strong growth over the next decade in various sectors. These are recent developments for Apollo, which continues to navigate through the financial landscape.
InvestingPro Insights
Following the recent downgrade in Apollo Global Management's (NYSE:APO) shares, BofA Securities has identified a buying opportunity, setting a higher price target amidst a volatile market environment. The InvestingPro data reveals a market capitalization of $56.48 billion and a P/E ratio of 10.64, suggesting a value-oriented entry point into a prominent player in the Financial Services industry. Additionally, the stock's recent performance indicates a significant price drop over the last week, aligning with BofA's analysis of the stock's decline.
InvestingPro Tips highlight Apollo's high shareholder yield and its status as an oversold stock according to the RSI, which could appeal to value and contrarian investors alike. While analysts have revised their earnings estimates downwards for the upcoming period, Apollo has maintained dividend payments for 14 consecutive years, with a current dividend yield of 1.87%, showcasing a commitment to shareholder returns. For those interested in exploring further, there are over 15 additional InvestingPro Tips available at https://www.investing.com/pro/APO, which can provide deeper insights into Apollo's financial health and market position.
The conservative price target set by BofA Securities, even when applying a discounted multiple, underlines the potential for a rebound in Apollo's stock price, especially when considering the company's long-term profitability and the strength of its returns over the past decade. These factors, combined with the recent price correction, may offer an attractive risk-reward balance for investors.
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