On Monday, Morgan Stanley adjusted its stance on P10 Inc (NYSE:PX), downgrading the firm's stock from Overweight to Equalweight and reducing the price target to $9 from the previous $12. The decision reflects the analyst's perspective on the company's growth and earnings potential amid a challenging fundraising environment.
P10 Inc, known for its focus on the lower middle market within the private sector, is anticipated to achieve an average organic growth rate of 11% over the next three years. However, the expected earnings per share (EPS) compound annual growth rate (CAGR) is just 9%. The company's management is set to ramp up investments, which is likely to affect the margin profile negatively due to the current fundraising difficulties.
Despite the volatile market conditions, P10's fully realized fee-related earnings (FRE) model is seen as a stabilizing factor for its earnings. Nonetheless, Morgan Stanley notes that the lack of cyclical earnings streams could limit P10's upside potential as capital markets recover.
In comparison to industry peers Hamilton Lane (NASDAQ:HLNE) Incorporated and StepStone Group Inc., P10 is trading at a discount. This is attributed to its slower earnings growth and a margin reset that did not meet expectations, potentially delaying the period in which P10's valuations might align with those of its peers. The revised price target of $9 reflects these concerns and a more cautious outlook on the company's financial performance.
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