Expanding Capital Markets Capabilities Will Strengthen Future Prospects

Key Takeaways

• Carlyle's expanding capital markets and enhanced investment portfolio increase revenue and future earnings potential through stronger fee-related and performance earnings.
  
• Rapid growth in asset-based finance and strategic fundraising boost Carlyle's credit market opportunities and fee-earning AUM, enhancing overall revenue.
  
• Challenges in private equity performance and macroeconomic dependencies may hinder Carlyle's fundraising abilities and revenue growth amid competitive and market pressures.

Catalysts

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

• Carlyle is seeing strong momentum in capital markets activity, which is expected to continue growing as they expand their capabilities. This should positively impact revenue by increasing fee-related earnings from transactions.
  
• The firm's underlying investment portfolio is performing well, leading to significant fund appreciation and net accrued performance revenues, which represents potential future earnings, enhancing overall earnings potential.
  
• Carlyle's asset-based finance sector continues to grow rapidly, with partnerships increasing origination capabilities. This is expected to boost revenue and earnings by tapping into a larger credit market opportunity.
  
• The company is focusing on fundraising through strategic channels like global wealth and targeted new fund launches, expecting to activate fees on new funds in the near term. This should result in increased fee-earning AUM and overall revenue.
  
• Carlyle has demonstrated strong commitment to share buybacks, which, coupled with improved operational performance, is expected to support earnings per share (EPS) growth, benefiting shareholders.

Carlyle Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carlyle Group's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 28.8% in 3 years time.
• Analysts expect earnings to reach $1.5 billion (and earnings per share of $4.29) by about December 2027, up from $117.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2027 earnings, down from 157.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.4x.
• Analysts expect the number of shares outstanding to decline by 0.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Carlyle Group Future Earnings Per Share Growth

Risks

• Potential tariffs or trade policy shifts under the Trump administration could create uncertainties in global trade, impacting Carlyle’s portfolio companies and deployment strategies, which may affect future revenues.
  
• Challenges in private equity performance, evidenced by stagnant or declining net IRRs in certain funds, could pose a headwind to Carlyle's future fundraising capabilities and impact revenue growth.
  
• The reliance on macroeconomic factors, such as interest rate stabilization and post-election market confidence, for performance improvement introduces risk if these conditions change unfavorably, potentially impacting earnings.
  
• While Carlyle’s capital markets activities have grown, potential for increased competition in the asset-backed finance space or changing market conditions could limit the growth or profitability of this segment, impacting margins.
  
• The company is experiencing fee pressures within Corporate Private Equity due to amortization of fund vintages and potential changes in fundraising success, which could limit management fee growth and revenue potential.

Valuation

• The analysts have a consensus price target of $56.12 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 $85.0, 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 2027, revenues will be $5.2 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of $51.78, the analyst's price target of $56.12 is 7.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.