S&P 500 Inclusion And Global Renaissance Will Drive Opportunity

Key Takeaways

• Apollo's S&P 500 inclusion is set to expand its shareholder base, driving revenue and public market exposure growth.
  
• Strategic focus on industrial renaissance and retirement solutions could enhance origination volumes and accelerate asset management growth.
  
• A conservative growth strategy, with a focus on internal execution and equity yield, could limit market share and earnings amidst regulatory and competitive pressures.

Catalysts

A private equity firm specializing in investments in credit, private equity, infrastructure, secondaries and real estate markets.

• Apollo's inclusion in the S&P 500 is expected to broaden its shareholder base, leading to potential growth in public market exposure and thus possibly driving future revenue increases.
  
• The company's strategic focus on the global industrial renaissance, particularly in areas like energy and infrastructure, is anticipated to significantly boost origination volumes, enhancing both revenue and earnings.
  
• Apollo's expansion into retirement solutions and evolving products for guaranteed income, alongside legislative prospects, could stimulate strong growth in retirement inflows, positively impacting net margins.
  
• The firm's intensified efforts in scaling origination capabilities, through modest M&A and enhanced hybrid capabilities, are likely to accelerate asset management growth, improving future fee-related earnings.
  
• With a shift towards integrating public and private asset markets, Apollo aims to leverage significant demand for private assets, which could lead to strong performance in alternative investments and positively affect its earnings growth.

Apollo Global Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apollo Global Management's revenue will decrease by 64.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.4% today to 590.0% in 3 years time.
• Analysts expect earnings to reach $6.6 billion (and earnings per share of $9.72) by about August 2028, up from $3.1 billion today.
• 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, down from 26.7x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.2x.
• Analysts expect the number of shares outstanding to decline by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Apollo Global Management Future Earnings Per Share Growth

Risks

• The reliance on internal execution and resource alignment, as 90% of challenges are perceived as internal rather than external, highlights potential difficulties in achieving projected growth targets and could impact net margins if execution risks materialize.
  
• The focus on not growing too fast in any single quarter or year could limit the ability to capture market share aggressively, potentially stalling revenue growth in a highly competitive environment.
  
• The strategy of being conservative with growth targets and focusing on equity yield rather than just asset growth may impact the scale of earnings if market conditions favor higher growth strategies.
  
• Increased competition, particularly in the insurance space, may pressure spreads and increase the cost of funds, potentially affecting the firm's spread-related earnings.
  
• Regulatory risks and industry changes, such as possible Treasury actions and impacts on state-based regulations, could alter the competitive landscape and affect revenues from certain business operations.

Valuation

• The analysts have a consensus price target of $161.856 for Apollo Global Management 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 $178.0, and the most bearish reporting a price target of just $117.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $6.6 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 7.8%.
• Given the current share price of $145.87, the analyst price target of $161.86 is 9.9% 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.