Oppenheimer raises Ares Management stock to Outperform

Wednesday, Oppenheimer upgraded Ares Management, L.P. (NYSE:ARES) stock from Perform to Outperform, setting a price target at $159.00. The firm’s analyst, Chris Kotowski, expressed continued confidence in the business models of financial services companies, particularly in the context of recent market downturns. Currently trading at $141.32, ARES has demonstrated strong dividend commitment, having maintained payments for 12 consecutive years with a 45.45% dividend growth in the last year. InvestingPro analysis reveals 10+ additional investment insights for this stock.

Kotowski’s report acknowledges the challenges faced in the current financial climate, noting the volatility since April 2 has necessitated frequent revisions to their earnings preview. Despite the market’s skepticism, which has seen a 32.7% decline in the sector since its peak on February 6, Kotowski maintains that the core business of managing funds for a fee remains robust. InvestingPro data shows ARES maintains a "GOOD" Financial Health Score, with particularly strong metrics in growth and profitability, despite a YTD decline of 19.55%.

The analyst emphasizes the distinction between companies that manage funds, which in turn lend money or acquire leveraged companies, and those that directly engage in borrowing or lending for leveraged buyouts. This clarification underpins the analyst’s positive outlook on the sector.

Kotowski’s preference within the sector is KKR, due to its potential for secular growth and investment in initiatives that are expected to yield returns in the future. Additionally, the report highlights a favorable view of two credit specialists, ARES—which received the upgrade—and OWL, as well as solutions providers GCMG, HLNE, PX, and STEP.

The upgrade of Ares Management’s stock to Outperform reflects a belief in the company’s resilience and potential for growth despite broader market uncertainties. The new price target of $159.00 suggests a positive trajectory for Ares Management’s stock value moving forward.

In other recent news, Ares Management reported a decline in earnings per share (EPS) for the fourth quarter, posting $1.23 compared to the analyst consensus estimate of $1.32. This shortfall was attributed to lower-than-expected net investment income and a higher corporate tax rate. Despite this, Ares Management saw positive developments with $3.8 billion in new investment commitments and an increase in portfolio investments at fair value to $26.72 billion. Additionally, the company’s liquidity remains strong with $635 million in cash and cash equivalents.

In a separate development, Citizens JMP upgraded Ares Management’s stock rating from Market Perform to Market Outperform, setting a price target of $165. This upgrade was based on the company’s substantial $133 billion in available capital, which is expected to generate significant management fees once invested. Analysts at Citizens JMP forecast that this capital deployment could contribute approximately $730 million in annual management fees.

Moreover, Ares Management funds provided a $275 million credit facility to ID.me, a digital identity wallet provider. Ares also plans to make a significant equity investment in ID.me, supporting its growth in the digital identity verification sector. John Clark, Principal at Ares Management, expressed enthusiasm about supporting ID.me’s next phase of growth. These developments highlight Ares Management’s active role in financing and supporting growing businesses.

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