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How Can Blackstone Revive Its Discounted Valuations?

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Lower valuations

The Blackstone Group (BX) has a PE (price-to-earnings) ratio of 11.18x on a next-12-month basis. Its competitors have an average PE ratio of 12.12x, which reflects BX’s discounted valuation.

Blackstone’s peers Oaktree Capital Management (OAK), Ares Management (ARES), and Ameriprise Financial (AMP) have PE ratios of 12.66x, 12.36x, and 11.35x, respectively, on a next-12-month basis.

Blackstone could recover from its discounted valuations mainly as a result of the significant amount of capital it has available for investments. In 4Q17, the company had $94.8 billion in dry powder even though it made deployments amounting to $50.7 billion in 2017.

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Expected rise

Blackstone could witness a rise in its valuations in 2018. The company plans to take up a majority stake in the financial and risk business of Thomson Reuters (TRI). In 2017, the overall private equity industry witnessed fundraising of ~$621 billion.

In 2018, the private equity industry is expected to witness fundraising of ~$750 billion on the back of a rise in the interests of current investors. However, new investors are expected to make an entry into the industry, and positive fundraising momentum could help Blackstone improve its valuations.

On a trailing-12-month basis, BX’s PE ratio stood at 16.18x. Its peers (XLF) Ameriprise Financial, Ares Management, and Oaktree have trailing-12-month PE ratios of 17.77x, 41.12x, and 10.64x, respectively.

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