On Monday, TD (TSX:TD) Cowen analyst expressed a more optimistic stance on Onex Corp (TSX:ONEX:CN) (OTC: ONEXF), upgrading the stock from Hold to Buy and increasing the price target to Cdn$140.00, up from Cdn$111.00. The upgrade was based on a strong performance in several key areas.
The analyst noted that Onex Corp had a good quarter, which led to the improved rating. The decision reflects several positive factors, including solid portfolio realization activity that has been observed year-to-date. Additionally, the company has shown strong credit fundraising efforts throughout 2024.
Another aspect contributing to the analyst's positive outlook is an improving outlook on Fee-Related Earnings (FRE). This metric is essential for assessing the profitability of the company's operations, and an upward trend in FRE is a positive sign for potential investors.
The analyst also pointed out that if interest rates were to decrease in 2025, it could lead to further portfolio realizations. Such a scenario would likely support additional buyback activities and growth in Net Asset Value (NAV) per share, which are both attractive to shareholders.
In summary, the upgrade to Buy and the rise in the price target for Onex Corp reflect the firm's solid performance in portfolio realizations, effective credit fundraising, and an enhanced outlook on FRE, with the potential for further growth if economic conditions remain favorable.
In other recent news, Onex Corp demonstrated a strong Q2 performance in 2024, marked by significant fundraising and investment realizations. The company's private equity platforms, including ONCAP, reported gains and continued progress in raising funds. The CLO platform notably raised $7 billion, significantly contributing to fee-generating assets under management.
Onex Corp also announced the strategic separation of Falcon, which will now operate independently. This move is expected to free up approximately $55 million in capital, according to Chris Govan. Despite Falcon's divestment resulting in about $3 billion in AUM leaving the platform, the impact on fee-related earnings is minimal, with about $20 million in run rate fees.
In terms of future plans, Onex Corp is prioritizing share buybacks and is considering reinitiating fundraising for its larger cap buyout strategy. The company remains attentive to the property and casualty insurance market cycle for future investment decisions.
InvestingPro Insights
Recent data from InvestingPro adds weight to TD Cowen's optimistic outlook on Onex Corp. The company's stock has shown impressive momentum, with a 24.95% price total return over the last three months and an 11.13% return in the past month. This aligns with the analyst's positive assessment of Onex's recent performance.
InvestingPro Tips highlight that Onex is trading at a low P/E ratio relative to its near-term earnings growth, with a current P/E ratio of 8.84. This suggests the stock may be undervalued, supporting the analyst's decision to upgrade it to a Buy. Additionally, Onex has maintained dividend payments for 38 consecutive years, demonstrating a commitment to shareholder returns that complements the potential for buyback activities mentioned in the analyst report.
The company's financial health appears robust, with InvestingPro data showing that cash flows can sufficiently cover interest payments, and liquid assets exceed short-term obligations. These factors contribute to the overall positive outlook and support the potential for future growth and portfolio realizations discussed by the TD Cowen analyst.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Onex Corp, providing deeper insights into the company's financial position and market performance.
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