On Thursday, Deutsche Bank (ETR:DBKGn) resumed coverage on Ares Management, L.P. (NYSE:ARES), adjusting its rating to Hold from Buy and setting a new price target of $132.00. This marks a significant change from the previous price target of $176.00 established on May 28. The revision is attributed to an error in the previous analysis, where an incorrect share count was used in the valuation model.
The initial coverage used the first quarter of 2024's weighted average Class A share count of approximately 199 million shares in the Sum-of-the-Parts (SOTP) valuation. However, this count did not account for the fully diluted share count of around 319 million, which factors in the roughly 62% public ownership of the Ares operating group. This miscalculation led to the stock being seen as attractively valued.
The correction of the share count has now led to the reassessment of Ares Management's stock value. The updated valuation reflects the current perception that the stock is fairly valued at the present levels, prompting the change in investment rating.
The revised price target of $132.00 comes as a result of this new analysis, bringing the valuation in line with the fully diluted share count. Deutsche Bank's updated coverage aims to provide investors with a more accurate reflection of Ares Management's market position.
The change in rating and price target is a direct consequence of the updated share count and does not reflect any new developments in the company's operations or market conditions. It is a recalibration intended to correct the earlier analytical oversight.
In other recent news, Ares Management Corporation launched a public offering of 2,650,000 shares of its Class A common stock, intending to use the proceeds for general corporate activities. This development follows the company's recent performance report showing the firm managing approximately $428 billion in assets. Several financial institutions, including BofA Securities, Morgan Stanley (NYSE:MS), and TD (TSX:TD) Cowen, have maintained a positive outlook on Ares Management.
BofA Securities reiterated a Buy rating, expressing confidence in the company's robust five-year organic growth driven by its leading private credit business. TD Cowen sustained its Buy rating and set a price target of $171, highlighting potential in areas such as retail growth, wealth management expansion, and capital deployment. Deutsche Bank initiated coverage with a Buy rating and a price target of $176, citing an expected compound annual growth rate of 22.4% for fee-related earnings from 2023 to 2026.
InvestingPro Insights
In light of Deutsche Bank's revised rating and price target for Ares Management (NYSE:ARES), investors may find additional context through real-time data and insights from InvestingPro. Ares Management has demonstrated a consistent ability to raise dividends, doing so for the past 4 years, and has maintained dividend payments for 11 consecutive years, signaling a potential for reliable income streams. Moreover, analysts predict the company will be profitable this year, which is corroborated by Ares' profitability over the last twelve months.
From a valuation perspective, Ares is trading at a high P/E ratio of 60.28, which further adjusts to 73.67 for the last twelve months as of Q1 2024. Despite this high earnings multiple, the company's PEG Ratio stands at 0.62, suggesting that its earnings growth could be undervalued. Additionally, Ares' Price / Book ratio is 15.14 as of the same period, which might be considered steep by some investors.
InvestingPro Tips highlight the company's strong historical performance, with notable returns over the last decade and the past five years. For those looking for more in-depth analysis, InvestingPro offers additional tips for Ares Management, which can be found at https://www.investing.com/pro/ARES. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 10 additional tips listed in InvestingPro, investors can gain a more comprehensive understanding of Ares Management's financial health and future prospects.
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