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On Tuesday, Jefferies updated its outlook on Ares Management, L.P. (NYSE: NYSE:ARES), raising the price target to $154 from the previous $137, while keeping a Hold rating on the stock. The adjustment comes as the firm's analyst made slight revisions to the third-quarter and full-year 2024 realized income per share estimates, now set at $0.97 and $4.23, respectively, down from $0.98 and $4.24.
The analyst provided details on the expected financials for the third quarter of 2024, projecting Fee Related Earnings (FRE) to remain stable at $348 million, while net realized performance fees are anticipated to decrease to $17 million from the $20 million previously forecasted, and down from $39 million in the prior quarter.
The FRE margin estimate for the third quarter is pegged at 43.8%, a slight dip from the previous 43.9%, but still an improvement over the 42.1% margin seen in the second quarter of 2024. The full-year 2024 FRE margin is expected to be 42.4%, consistent with the 40.7% reported for the full year of 2023.
The report also highlighted that the company's margin outlook is influenced by the growth in its wealth management channel, even as General and Administrative (G&A) costs are likely to increase in tandem with the growth in Assets Under Management (AUM). Moreover, Jefferies anticipates that Ares Management's fundraising efforts in 2024 will not reach the levels seen in 2023, which saw an increase of over $74.5 billion, due to the absence of flagship funds in the market.
In other recent news, Ares Management Corporation has announced a series of significant acquisitions. The company has agreed to acquire the international business of GLP Capital Partners Limited, excluding its Greater China operations, for $3.7 billion. In addition, Ares has also acquired Walton Street Capital Mexico, a real estate asset management company, which is expected to enhance Ares' portfolio with approximately $2 billion in industrial real estate assets.
These acquisitions are expected to nearly double Ares Real Estate's assets under management to about $96 billion and expand its global reach across North America, Europe, Asia, and Latin America. The acquisitions are anticipated to be immediately beneficial to Ares' earnings and reflect the company's ongoing growth in the real estate sector.
In terms of analyst coverage, TD Cowen maintained a bullish stance on Ares, reiterating a Buy rating, while CFRA raised its price target for Ares to $170. However, Redburn-Atlantic initiated coverage on Ares Management with a Neutral rating.
Ares Management's recent developments also include an 18% year-over-year increase in total assets under management, reaching $447.2 billion in the second quarter of 2024, and a 21% increase in its third-quarter common dividend. The National Football League has also approved Ares Management, among other private equity firms, to acquire up to 10% stakes in its teams.
InvestingPro Insights
Ares Management's recent performance and financial metrics offer additional context to Jefferies' updated outlook. According to InvestingPro data, Ares has a market capitalization of $50.25 billion and is trading at a high P/E ratio of 80.96. This valuation aligns with the InvestingPro Tip that Ares is "Trading at a high earnings multiple," which investors should consider in light of Jefferies' Hold rating.
The company's strong performance is evident in its impressive stock returns. InvestingPro data shows a 52.15% price total return over the past year and a 37.77% return year-to-date. This performance is reflected in the InvestingPro Tip that Ares has a "High return over the last year" and is "Trading near 52-week high," with the current price at 99.38% of its 52-week high.
Despite the analyst's slight downward revision of earnings estimates, Ares has demonstrated consistent dividend growth. An InvestingPro Tip notes that Ares "Has raised its dividend for 4 consecutive years," with a current dividend yield of 2.32%. This consistent dividend policy may provide some reassurance to investors considering Jefferies' Hold rating.
For those seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Ares Management, providing a deeper understanding of the company's financial health and market position.
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