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First Data’s Stock Rebound Could Affect KKR’s 3Q16 Valuations

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Expected growth

KKR & Co. (KKR) expects to post earnings per share (or EPS) of $0.50 in 3Q16 due to improvements in its private and public market holdings. 

The company reported an economic net income of $191 million in 2Q16, mainly due to strong public market appreciation and a rebound in its energy holdings. The stock has risen 15% over the past quarter, mainly due to better-than-expected operating results.

Valuations2

First Data Corporation (FDC) is one of KKR’s major holdings. The stock has rebounded 24% in 3Q16 compared to its markdowns in the previous quarters. KKR has successfully raised new capital for its private and public market funds. The company has bought back its stock to take advantage of its lower valuations.

KKR declared a dividend of $0.16 per share in 2Q16. This dividend translated into an annualized dividend yield of 5.5%. The company’s dividend yield fell due to lower distributions compared to previous quarters. Its peers have the following dividend yields:

  • Carlyle Group (CG) – 8.1%
  • Blackstone Group (BX) – 7.2%
  • Apollo Global Management (APO) – 12.8%

Together, these companies form 4.1% of the PowerShares Global Listed Private Equity ETF (PSP).

Valuations fall

KKR is valued at 8.7x on a one-year forward earnings basis. Currently, it’s trading at 9.3x. The company is trading at a discount mainly due to a lower premium generation on its holdings and higher exposure in the energy space. KKR’s reported AUM (assets under management) reached ~$131 billion in 2Q16. Its fee-paying AUM were ~$95 billion.

KKR has fallen 24% over the past 12 months due to higher risks in alternatives, falling holdings valuations, the withdrawal of capital, and fewer new capital deployments. Limited partners are seeking less risky deployments to reduce the company’s steep falls in holdings and valuations.

For a more detailed analysis of KKR & Co., read KKR: The $100 billion alternative asset manager.

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