CFRA, a prominent financial research firm, increased its price target for Ares Management, L.P. (NYSE:ARES), a leading global alternative investment manager. The new target is set at $170.00, up from the previous $155.00, while the firm retains a Buy rating on the stock.
The adjustment reflects a positive outlook based on the expansion of the total addressable market in private credit. Ares Management has reported that the private credit market was valued at $1.3 trillion in 2023 and is anticipated to surge to $2.7 trillion by 2028.
This growth trajectory is a key factor in the raised target price, with CFRA applying a forward price-to-earnings (P/E) ratio of 28.8 times their 2025 earnings per share (EPS) estimate. This ratio represents a premium compared to both Ares's peers and its three-year historical average of 24.2 times.
The firm's decision to maintain the Buy rating is backed by Ares's strong performance in the second quarter of 2024, where the company reported total assets under management (AUM) of $447.2 billion, marking an 18% year-over-year increase. CFRA has kept its 2024 EPS estimate for Ares at $4.30, slightly above the consensus of $4.15, and anticipates a 2025 EPS of $5.90, compared to the consensus of $5.78.
CFRA's analysis suggests that Ares Management is strategically positioned to benefit from the secular shift toward private credit, moving away from traditional banking and public debt markets.
The firm emphasizes that this trend is still in its early stages, and Ares, as a premier alternative investment manager, is poised to capitalize on this shift.
The research highlights that approximately 92% of Ares's fundraising is sourced from existing institutions, indicating strong and sustained relationships with its investors. The firm also notes Ares's potential to increase its share in the private credit markets across Asia and Europe.
The company has observed an upward trend in loan sizes for direct lending, with midsize deals now reaching up to $500 million and larger transactions involving partnerships exceeding $1 billion.
The National Football League (NFL) has approved private equity firms to acquire up to 10% stakes in its teams, with firms such as Ares Management, Arctos Partners, Sixth Street, and a consortium including Blackstone (NYSE:BX), Carlyle, CVC, and Dynasty Equity, collectively committing a substantial $12 billion.
This decision marks a significant shift in the NFL's traditional ownership structure. In related news, Ares Management has been the subject of recent analyst attention. Redburn-Atlantic initiated coverage on Ares Management with a Neutral rating, while TD Cowen raised its price target for the company from $158.00 to $162.00.
Automated Industrial Robotics Inc. (AIR) has expanded its global reach by acquiring UK-based Sewtec Automation, a move funded primarily by an investment from a private equity fund managed by Ares Management. Furthermore, Hyatt Hotels (NYSE:H) Corporation has sold the Hyatt Regency Orlando and an adjacent land parcel for approximately $1.07 billion to RIDA Development Corporation and an Ares Management Real Estate fund.
Lastly, Ares Management reported a third-quarter common dividend of $0.93 per share, a 21% increase from the previous year, and a record $447 billion in assets under management, an 18% increase year-over-year.
InvestingPro Insights
Ares Management's recent performance and market position are underscored by real-time data from InvestingPro, which paints a detailed picture for investors. Currently, Ares boasts a substantial market capitalization of $31.21 billion, reflecting its significant presence in the investment management industry. Despite a high P/E ratio of 78.94, the company has demonstrated a capacity to sustain and grow dividends, having increased them for the past four consecutive years. This commitment to shareholder returns is further evidenced by a dividend yield of 2.37%, which is attractive to income-focused investors.
InvestingPro Tips highlight that Ares is trading near its 52-week high, with the price at 98.62% of this peak. This aligns with CFRA's upgraded price target and suggests that investor sentiment remains strong. However, it's important to note that 11 analysts have recently revised their earnings estimates downwards for the upcoming period, indicating potential headwinds or recalibration of expectations. With a robust return of 53.93% over the past year, Ares has proven its ability to generate significant investor returns, a trend that may continue if the company capitalizes on the expanding private credit market as projected.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available on the platform, providing more nuanced insights into Ares's financial health and market prospects. These tips can be a valuable resource for those looking to make informed investment decisions in the context of Ares's strategic positioning within the private credit sector.
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