On Friday, JPMorgan updated its outlook on StepStone Group (NASDAQ:STEP) shares, increasing the price target to $51.00 from $49.00 and maintaining an Overweight rating.
The revision follows StepStone's reported first-quarter 2024 earnings, which surpassed expectations with an Adjusted Net Income per Share of $0.33, exceeding both the Bloomberg LP Street consensus of $0.28 and JPMorgan's estimate of $0.27.
The performance boost was attributed to higher-than-anticipated fee-related revenues and realized carry. Fee-related revenues were $153.4 million against a consensus of $147.8 million, while realized carry reached $18.1 million, surpassing the $13.6 million consensus.
A significant contribution to the results was the $900 million Real Estate Partners V exiting its fee holiday. Additionally, the Venture Capital Secondaries Fund VI began its fee-paying phase a quarter earlier than expected with $1.3 billion more fee-paying capital than projected.
StepStone's management expressed a positive outlook on the current macro environment, noting improved fundraising conditions compared to a year ago.
The company reported approximately $6 billion in new funds, split between $4 billion in Separately Managed Accounts and $2 billion in Commingled Funds.
Fee-paying Assets Under Management for the quarter included $2.8 billion from SMAs and $2.4 billion from Commingled Funds, totaling $5.2 billion, which was above JPMorgan's estimate of $4.5 billion.
Despite a market-wide downtrend in SMA fee rates, which for StepStone fell to 389 basis points from 392 a quarter earlier and 403 a year prior, the firm saw an appreciation in Commingled Fund fee rates.
The current rate of 890 basis points outperformed both the previous quarter's 872 and the prior year's 835. This increase is partly due to the success of the wealth dedicated Evergreen funds, which command higher management fees, such as the $2.6 billion SPRIM fund with a 140 basis point charge.
In the first quarter of 2024, StepStone achieved a record $600 million in sales through the private wealth channel, which represents a significant portion of the firm's recent inflows and existing Assets Under Management.
The firm also anticipates the first phase of the previously announced exchange transactions to take place in the second quarter of 2024, earlier than the previously forecasted third quarter.
Despite more conservative carry estimates, JPMorgan has adjusted its full-year estimates for 2024 and 2025 upwards and increased its multiple to 23.0 times, which remains two turns below the valuation of its closest peer, HLNE.
InvestingPro Insights
Following JPMorgan's optimistic update on StepStone Group (NASDAQ:STEP), a glance at the real-time data from InvestingPro provides additional context for investors. StepStone's market capitalization stands at a robust $4.31 billion. The company's revenue growth has been impressive, with a surge of 322.63% in the last twelve months as of Q3 2024, highlighting its strong performance in a challenging economic landscape. Despite a quarterly revenue decline, the annual figures paint a picture of significant expansion.
InvestingPro Tips suggest that StepStone has been consistently raising its dividend, marking three consecutive years of growth, which could appeal to income-focused investors. The company's net income is also expected to grow this year, and analysts have revised their earnings upwards for the upcoming period, indicating a positive sentiment around StepStone's profitability. Notably, the company has been trading near its 52-week high, reflecting investor confidence in its market position.
For investors seeking a deeper dive into StepStone's financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/STEP. With the use of the promo code PRONEWS24, new subscribers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights and analysis that could guide their investment decisions.
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