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Oppenheimer analyst Chris Kotowski downgraded Apollo Global Management (NYSE:APO) and Blue Owl Capital (NYSE:OWL) to Perform from Outperform as their stocks traded through his price targets.
“We stress that these rating changes are purely based on maintaining discipline in our valuation methodology,” the analyst wrote in a note to clients. “The fundamental outlook is, if anything, improved, and especially so for credit players like APO, with higher base rates and yet another round of higher capital requirements proposed for banks.”
Over the summer, financial markets appeared to be getting back to normal. Examples of a pickup in activity include the Arm and Instacart IPOs and GTCR’s acquisition of Worldpay, which marked the first mega-billion syndicated leveraged loan transaction in more than a year. In addition, M&A appears to have moved past the bottom.
In leading up to Q3 earnings, Kotowski pointed out that the public equity markets were lower over the summer. As a result, he now assumes an average reduction of ~3% in the carried interest receivable compared with a normal plus 3.56% increase. That brings the estimated carry receivable going into 2024 at ~7% lower.
The analyst still considers Carlyle Group (CG), KKR (KKR), Grosvenor Capital Management (GCMG), and P10 (PX) as “significantly undervalued.”
Kotowski’s Perform rating on Apollo (APO) aligns with the SA Quant rating of Hold and broke from the average Wall Street rating of Buy. Likewise, SA Quant rating on Blue Owl (OWL) is Hold and the average Wall Street rating is Buy.