Capital Redeployment And Digital Shift Will Change Outlook Despite Risks

Key Takeaways

• Aggressive share buybacks and redeployment into private, tech-driven assets are expected to enhance earnings growth and shareholder value.
  
• Focused investments in FinTech, healthcare, and data analytics position Cannae to benefit from digital transformation and long-term sector demand.
  
• Shifting toward opaque private assets, operational struggles at key holdings, rising costs, and increased competition risk reducing transparency, liquidity, valuations, and long-term shareholder returns.

Catalysts

A principal investment firm.

• The wave of capital from monetizing legacy public investments (notably, the major Dun & Bradstreet sale) allows Cannae to aggressively buy back shares at a deep discount to NAV and redeploy capital into differentiated private assets, supporting future growth in NAV per share and potentially boosting EPS through accretive repurchases and improved asset mix.
  
• Ongoing portfolio optimization – shifting from public to private, tech-enabled, and proprietary investments – positions Cannae to capitalize on the accelerating adoption of digital platforms and data-driven businesses, which benefits from robust long-term demand and is likely to drive higher revenue growth and increased portfolio company valuations.
  
• Significant investments in growth sectors such as FinTech, healthcare solutions, and data analytics (directly and via platforms like JANA) are poised to benefit from increased institutional allocations to these verticals and macro trends like demographic shifts, supporting future realized gains and overall earnings expansion.
  
• Strategic operational improvements and value-creation initiatives at portfolio companies (e.g., margin expansion at Alight, targeted stadium investments, and revenue diversification at Black Knight Football) are expected to drive higher aggregate net margins and unlock step-change growth in consolidated earnings and cash flows.
  
• A robust capital base and proven M&A execution allow Cannae to remain opportunistic-deploying capital into undervalued sectors and innovative businesses that enable digital transformation-likely resulting in above-average ROIC and sustained revenue/NAV growth as secular demand for tech-enabled solutions continues to rise.

Cannae Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cannae Holdings's revenue will decrease by 3.5% annually over the next 3 years.
• Analysts are not forecasting that Cannae Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cannae Holdings's profit margin will increase from -79.4% to the average US Diversified Financial industry of 15.2% in 3 years.
• If Cannae Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $59.6 million (and earnings per share of $1.33) by about August 2028, up from $-347.0 million 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 20.8x on those 2028 earnings, up from -2.9x today. This future PE is greater than the current PE for the US Diversified Financial industry at 16.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.85%, as per the Simply Wall St company report.

Cannae Holdings Future Earnings Per Share Growth

Risks

• The ongoing shift of Cannae's portfolio away from liquid public company shares into more opaque, illiquid private assets and differentiated investments may increase valuation risk and reduce transparency, potentially leading to lower future liquidity, greater market skepticism, and discounted share valuations relative to NAV, thereby negatively impacting revenue from asset realizations and overall net asset value growth.
  
• Multiple portfolio companies, including Alight and O'Charley's, are facing operational headwinds-Alight reported a net loss of $1 billion including a major goodwill impairment, lowered revenue guidance, and flat participation growth, while O'Charley's continues to see double-digit same-store sales declines; persistent underperformance of such holdings can depress Cannae's earnings, net margins, and NAV over the long term.
  
• The increased emphasis on opportunistic investments, minority stakes (e.g., in Black Knight Football), and partnership models (e.g., JANA) exposes Cannae to greater market timing risks and higher dependence on external capital partners' decisions, which may result in unpredictable cash flows, impaired asset recycling in downturns, and fluctuations in consolidated earnings.
  
• Rising operating expenses, as evidenced by a $30 million year-over-year increase partly due to management transitions, and the risk of ongoing turnover or incentive misalignment within the leadership and business lines could continue to pressure net margins and elevate SG&A costs over time.
  
• The narrowing of the "conglomerate discount" as investors increasingly prefer investment vehicles offering greater transparency and direct exposure (rather than diversified holding companies like Cannae), combined with intensifying competition from private equity and alternative asset managers for deals, may further erode Cannae's valuation multiples and compress long-term returns on invested capital, impacting both revenue growth and future shareholder returns.

Valuation

• The analysts have a consensus price target of $22.0 for Cannae Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $393.1 million, earnings will come to $59.6 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $18.25, the analyst price target of $22.0 is 17.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.