New Products And Partnerships Will Strengthen Global Wealth Segment

Key Takeaways

• Strategic expansion in Global Credit and Investment Solutions drives robust revenue, while investment diversification boosts future margins.
  
• Share buybacks and Global Wealth growth strengthen EPS and revenue through capital returns and increased management fees.
  
• Planned investment shifts and declining management fees pose risks to net margins and near-term revenues, amid regulatory uncertainties and volatile economic conditions.

Catalysts

An investment firm specializing in direct and fund of fund investments.

• Carlyle Group's strategic focus on growth areas such as Global Credit and Global Investment Solutions is expected to drive future revenue expansion, with these segments having delivered 40% revenue growth over three years. This expansion is anticipated to improve the firm's overall revenue and earnings.
  
• The firm is actively investing in its Capital Markets business, which achieved record transaction fees despite a challenging market environment. New focus areas like asset-backed finance, infrastructure, and renewable energy now account for 40% of revenue, suggesting future margin improvements through diversification.
  
• Carlyle's share repurchase program, with $1.4 billion authorized, is driven by its strong belief in the stock's undervaluation. This strategy should enhance EPS growth as buybacks reduce the share count and return capital to shareholders, positively impacting earnings.
  
• The Global Wealth segment is seeing record inflows and expects continued growth, supported by new product launches and distribution partnerships. This segment's growth is poised to increase assets under management and, subsequently, management fees, improving overall revenue and earnings.
  
• An uptick in realization activities within the Global Private Equity segment, particularly through successful IPOs and asset sales, is projected to increase performance revenues, thus enhancing the net margins and overall earnings for Carlyle Group.

Carlyle Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carlyle Group's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.5% today to 27.1% in 3 years time.
• Analysts expect earnings to reach $1.5 billion (and earnings per share of $4.22) by about March 2028, up from $1.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, up from 14.8x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to decline by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Carlyle Group Future Earnings Per Share Growth

Risks

• There is a potential downside risk in the planned investment for future growth, particularly as the firm reallocates resources from buybacks to new business areas. This could put pressure on net margins if these investments don't yield expected returns in time.
  
• The decline in Global Private Equity management fees, expected to continue until the next U.S. buyout fund is raised, may lead to reduced revenue streams in the near term.
  
• Realization activities, which play a critical role in carry and performance fees, carry uncertainties in a volatile economic environment, impacting year-over-year earnings.
  
• The fee-paying AUM was negatively affected by market and FX impacts, adding uncertainty to future earnings as these can contribute to short-term revenue fluctuations.
  
• Regulatory or policy shifts (noted as areas of ongoing evaluation) may have unforeseen impacts on Carlyle's portfolio, potentially impacting revenue and net margins if changes are unfavorable.

Valuation

• The analysts have a consensus price target of $56.389 for Carlyle Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $83.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.3 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of $42.2, the analyst price target of $56.39 is 25.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.