9 Mar

Why KKR’s Valuations Could Rise in 2017

WRITTEN BY Robert Karr

2017 outlook

KKR & Company (KKR) expects to post EPS (earnings per share) of $0.49 in 4Q16. The company reported an economic net income of $339 million in 4Q16, mainly due to appreciation in private equity and energy holdings.

The stock has risen 6% in the past quarter, mainly due to higher deployments, rising public portfolio valuations, and distributions.

Why KKR’s Valuations Could Rise in 2017

First Data (FDC) is one of KKR’s major holdings. The stock has risen 7.8% in 4Q16 as compared to a substantial decline in 1H16. In 2016, KKR successfully raised $28.8 billion across its product offerings. The company has deployment commitments of $3 billion in 1Q17, mainly in private markets across the Americas, Europe, and Asia.

KKR declared a dividend of $0.16 per share in 4Q16. This dividend translated into an annualized dividend yield of 3.6%. Its peers have the following dividend yields:

  • Carlyle Group (CG): 11.7%
  • Apollo Global Management (APO): 6.3%
  • Blackstone Group (BX): 5.2%

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

Valuations

KKR is valued at 7.6x on a one-year forward earnings basis. In comparison, its peers are trading at 8.2x. The company is trading at a discount, mainly due to an average operating performance in 2016 and lower dividend yields when compared with the industry average. KKR’s posted AUM (assets under management) reached ~$130 billion in 4Q16. Its fee-paying AUM was ~$101 billion.

KKR has fallen 34% over the past 12 months due to strong operating performance in 2H16, a rise in its holdings’ valuations, and a rebound in energy holdings.

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