On Monday, Goldman Sachs downgraded Hamilton Lane Inc . (NASDAQ:HLNE) stock from Neutral to Sell and set a new price target of $139.00.
The significant change in outlook is attributed to the slowing growth in management fees and increased competition, particularly in the Retail channel. Analysts at Goldman Sachs project Hamilton Lane's management fee compound annual growth rate (CAGR) from 2024 to 2027 to be around 12%, compared to a historical 19%. This expectation falls 3%-4% short of the consensus.
The analysts noted that more than half of the company's management fee growth since 2021 has been driven by the Retail channel. However, they anticipate that rising costs associated with servicing this channel, along with Hamilton Lane's recent equity grant, will likely decelerate fee-related earnings (FRE) growth to 10% from 2024 to 2027, a significant drop from the 30% growth observed in the past years. This slowdown leads them to a projection that is 13%-14% below the consensus.
Goldman Sachs analysts further explained that they expect the slower growth and potential downside to estimates to be inconsistent with Hamilton Lane's stock valuation. They pointed out that the stock's implied 2026 after-tax FRE multiple is approximately 32 times, net of stock-based compensation, which corresponds to a price-to-earnings growth (PEG) ratio of 2.6. This figure is notably higher than the group's average PEG ratio of 1.8.
The $139 price target is based on a sum-of-the-parts (SOTP) valuation method and reflects a forward price-to-earnings (P/E) ratio of 26 times for the fifth through eighth quarters, net of stock-based compensation (SBC). This new target signifies a shift in expectations for the company's financial performance and market position.
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