On Wednesday, BofA Securities sustained its positive stance on Ares Management, L.P. (NYSE:ARES), reiterating a Buy rating and a price target of $181.00. Following a group dinner with Ares Management’s CFO, Jarrod Phillips, earlier in the week, the firm expressed confidence in the company's future performance.
The optimism is anchored in the anticipation of robust five-year organic growth driven by Ares's leading private credit business, including Asset-Based Finance (ABF) and infrastructure, as well as potential scaling opportunities in secondaries, private wealth, and insurance sectors.
The firm's analysis suggests that, despite Ares Management's significant stock outperformance, there is still room for valuation growth. The rationale behind the sustained Buy rating is the expectation of over 20% fee-related earnings (FRE) growth over the next five years. This projected growth is believed to support a valuation that could approach 30 times earnings, bolstered by Discounted Cash Flow (DCF) and Price/Earnings to Growth (PEG) ratio analysis, which indicates a ratio closer to 1.0x.
Ares Management, which specializes in alternative asset management, has been recognized for its strong performance in private credit—a sector that has seen increasing investor interest due to its potential for higher yields in a low-interest-rate environment. The company's strategic initiatives in expanding its product offerings and reaching new client segments, such as the private wealth and insurance industries, are expected to contribute to its growth trajectory.
The financial firm's price target of $181.00 reflects a confidence in Ares Management's ability to capitalize on these growth drivers and expand its market presence. The target is set in the context of the broader market conditions and the company's financial outlook, which includes the aforementioned growth in fee-related earnings and the scaling of its business operations.
As of the last closing, Ares Management's stock has been performing well, with the company's strategic moves and solid fundamentals receiving acknowledgment from investors. The continued endorsement from BofA Securities underlines the positive market sentiment toward the company's prospects.
In other recent news, Ares Management has been a focal point for analysts due to its financial performance and strategic growth plans. Earnings per share (EPS) are projected to increase from $4.32 to $6.11 over the next two fiscal years, reflecting a positive outlook on the company's profitability. TD (TSX:TD) Cowen maintained a Buy rating on Ares Management with a price target of $171, emphasizing the company's potential in retail growth, wealth management expansion, and capital deployment.
Similarly, Deutsche Bank (ETR:DBKGn) initiated coverage on Ares Management with a Buy rating and a price target of $176, citing an expected compound annual growth rate (CAGR) of 22.4% for fee-related earnings (FRE) from 2023 to 2026.
Moreover, TD Cowen has raised the 12-month price target for Ares Management to $171 from the previous $154, reflecting a new valuation approach and confidence in the company's growth trajectory. However, not all analyst firms share the same level of optimism. Keefe, Bruyette & Woods maintained a Market Perform rating on Ares Management, with a steady price target of $145.
InvestingPro Insights
Complementing BofA Securities' optimistic view on Ares Management, key financial metrics from InvestingPro reinforce the company's strong market position. With a market capitalization of $42.07 billion, Ares Management's robust financial health is evidenced by a gross profit margin of 44.07% over the last twelve months as of Q1 2024. The company's revenue has also seen a growth of 11.8% during the same period, highlighting its successful expansion and operational efficiency.
InvestingPro Tips suggest Ares has a history of rewarding shareholders, having raised its dividend for 4 consecutive years and maintaining dividend payments for 11 consecutive years. The dividend yield stands at 2.74%, with a notable dividend growth of 20.78% in the last twelve months. Additionally, analysts remain confident about the company's profitability in the coming year, which aligns with the projected fee-related earnings growth that underpins BofA's valuation. For readers looking to delve deeper into Ares Management's performance and future potential, there are 11 additional InvestingPro Tips available that provide a comprehensive analysis of the company's financial health and market prospects. Unlock these insights and enjoy an extra 10% off a yearly or biyearly Pro and Pro+ subscription with the coupon code PRONEWS24.
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