Activated Capital And Private Equity Will Unlock Asia And Europe

Key Takeaways

• KKR's strong pipeline and expansion into private wealth management could significantly enhance future revenue and earnings growth.
  
• Diversified portfolio and partnerships are expected to drive long-term returns, supporting a sustainable growth in earnings.
  
• Macro and geopolitical uncertainties may hinder KKR's portfolio performance, affecting revenues, earnings growth, and long-term capital-raising efforts.

Catalysts

A private equity and real estate investment firm specializing in direct and fund of fund investments.

• KKR's recent $31 billion in new capital raised is not fully reflected in management fees due to the capital still being in its initial phase. Once active, this could significantly boost future revenue.
  
• The company has a strong pipeline of planned monetizations, with over $800 million in pending monetization-related revenue, which could bolster future earnings and realized performance income.
  
• KKR's robust and diversified private equity portfolio, including a heavy presence in Asia and Europe, provides resilience and potential for appreciation, potentially enhancing future returns and earnings.
  
• The strategic partnerships and expansion into private wealth management and individual investor markets, particularly in collaboration with Capital Group, could drive incremental fee-related revenue and earnings growth.
  
• Initiatives to expand alternative investments within the insurance segment are expected to enhance returns, supporting the goal of achieving a sustainable 20%-plus all-in return on equity, thus driving long-term earnings growth.

KKR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming KKR's revenue will decrease by 22.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 42.7% in 3 years time.
• Analysts expect earnings to reach $5.3 billion (and earnings per share of $6.61) by about May 2028, up from $3.1 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 29.9x on those 2028 earnings, down from 32.8x today. This future PE is greater than the current PE for the US Capital Markets industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

KKR Future Earnings Per Share Growth

Risks

• Exposure to tariffs and trade policy changes could impact parts of KKR's portfolio, potentially affecting investment performance and resulting in decreased revenues.
  
• Volatility in global markets may affect KKR's capital raising efforts, altering fundraising outlooks and potentially impacting long-term revenue and growth projections.
  
• KKR’s heavy investment in longer-dated alternatives within its insurance business may take time to reflect positively in financial statements, possibly impacting short-term earnings.
  
• Current uncertainty in the macroeconomic environment could delay monetization activities, affecting KKR’s realized performance income and hindering earnings growth.
  
• If supply chain disruptions or geopolitical risks escalate, they could indirectly affect KKR's investment portfolio and operational performance, potentially impacting net margins.

Valuation

• The analysts have a consensus price target of $139.297 for KKR 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 $189.0, and the most bearish reporting a price target of just $120.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.3 billion, earnings will come to $5.3 billion, and it would be trading on a PE ratio of 29.9x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $113.65, the analyst price target of $139.3 is 18.4% 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.