The enduring impacts of last year’s trends, marked by sluggish fundraising, heightened interest rates, and a macroeconomic environment overshadowed by conflict and geopolitical tensions, continue to cast a shadow of uncertainty over the prospects of the private equity industry.

Despite all this, the potential for rate cuts, advancements in technology, and an increased emphasis on sustainable and ethical investing offer glimpses of positivity that could impact the industry favorably. Given the optimism, investors may find it advantageous to keep an eye on two sound private equity stocks, KKR & Co. Inc. (KKR) and Apollo Global Management, Inc. (APO), for potential gains.

But before we dive deeper into the fundamentals of the aforementioned stocks, let’s briefly examine the industry dynamics first.

Over the past decade, the Private Equity (PE) industry has flourished, capitalizing on low-interest rates and multiple expansions. However, PE activity faced a notable setback in 2023, falling from its pandemic peaks. It was largely attributed to the spike in interest rates and heightened capital costs, thereby significantly hampering private equity performance.

While these trends may continue to persist, the outlook for PE firms in 2024 is bolstered by hopes of interest rate cuts. Notably, PE firms are currently holding record levels of dry powder. Tom Amster, Global Head of Macquarie Capital’s Financial Sponsors Group, anticipates that PE firms will aggressively deploy record levels of dry powder in the upcoming months.    

S&P Global reports that private equity dry powder globally reached a whopping $2.59 trillion by the end of 2023. The conclusion of the Federal Reserve's tightening cycle, followed by the stabilization of interest rates, should establish an ideal setting for unleashing this equity capital.

Looking ahead, the PE industry’s prospects are further brightened by the increased adoption of technologies such as Artificial Intelligence (AI), the surge in infrastructure investment, and heightened emphasis on sustainable investing driven by environmental, social, and governance (ESG) principles.

These trends reflect a shift towards smarter, more informed, and data-driven decision-making, positioning private equity for success in an ever-changing market landscape. Fueled by such positive trends, the global private equity market is anticipated to hit $1.10 trillion by 2032, demonstrating a 9.7% CAGR spanning 2023 to 2032.

In light of such encouraging industry prospects, let’s now dive deeper into the fundamentals of the featured Private Equity stocks, beginning with number two.

Stock #2: KKR & Co. Inc. (KKR)

KKR is a private equity and real estate investment firm specializing in direct and fund-of-fund investments. It specializes in acquisitions, leveraged buyouts, management buyouts, credit special situations, growth equity, mature, mezzanine, distressed, turnaround, lower middle market and middle market investments.

On January 23, 2024, KKR struck a multi-year deal with Optio Investment Partners, an innovative credit platform, and Kennedy Lewis Investment Management, a leading alternative credit manager. Under this arrangement, Kennedy Lewis and KKR will furnish asset-based funding to bolster the Optio Auto Evolution strategy aimed at advancing next-generation auto financing.

Vaibhav Piplapure, Managing Director of KKR's Credit team, highlighted auto financing as a primary focus of KKR's asset-based finance strategy, acknowledging the increasing need for innovative solutions among automotive companies to enhance cash flows and allocate resources to product development, especially in electrification.

In the same month, KKR acquired two top-tier purpose-built rental multi-family buildings from Quintain, a developer and asset manager of Wembley Park. Both buildings boast "Excellent" and "Platinum" ratings. Charles Tutt, the Head of UK Real Estate at KKR, expressed satisfaction with the acquisition of the two high-quality assets in Wembley Park, one of London’s most exciting residential neighborhoods.   

Positioned within a well-established submarket with outstanding connectivity to Central London, these assets are poised to capitalize on the favorable dynamics of the London residential market.

For the fiscal fourth quarter, which ended on December 31, 2023, KKR’s revenue increased 75.4% year-over-year to $4.43 billion. The company’s net income and EPS rose significantly from the prior-year quarter to $1.04 billion and $1.14, respectively. Also, its total assets under management stood at $553 million, up 9.7% year-over-year.

Street predicts KKR’s revenue and EPS for the fiscal 2024 first quarter (ending March 2024) to increase 31.5% and 33.6% year-over-year to $1.68 billion and $1.08, respectively. Moreover, the company has an excellent surprise history, surpassing its revenue and EPS estimates in each of the trailing four quarters.

KKR’s shares have soared 83.9% over the past nine months and 53.3% over the past six months to close the last trading session at $94.73.

KKR’s POWR Ratings reflect this sound outlook. It has an A grade for Sentiment and a B for Growth and Momentum. In the 34-stock Private Equity industry, it is ranked #28. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

Click here to see KKR’s ratings for Value, Stability, and Quality.

Stock #1: Apollo Global Management, Inc. (APO)

APO is a private equity firm with expertise in credit, private equity, and real estate markets. The company offers diverse investment strategies such as buyouts, distressed assets, debt investments, and growth capital. In addition, the firm provides its services to endowment and sovereign wealth funds, as well as other institutional and individual investors.

On January 11, 2024, APO unveiled a fresh collaboration with Patrick Cantlay, a top-ranked PGA TOUR golfer. Cantlay assumes the role of the inaugural brand partner for APO and its associated ecosystem, as the firm aims to extend its asset management and retirement services across a diverse range of clients.

On November 2, 2023, APO, Tiger Infrastructure Partners, and Modern Aviation announced their entry into a definitive agreement. According to the agreement, APO-managed infrastructure funds will acquire a majority stake in Modern Aviation, a Fixed Base Operator (FBO) platform serving various aviation sectors across North America.

Tiger Infrastructure Partners, the current owner of Modern Aviation, and the company's management team will reinvest alongside APO. These combined investments are expected to substantially enhance Modern Aviation's shareholder base, facilitating future strategic growth endeavors.

For the fiscal third quarter, which ended on September 30, 2023, APO’s total revenues amounted to $2.59 billion, while its net income and EPS came in at $640 million and $1.10 per share versus a net loss and loss per share of $849 million and $0.98 per share in the prior-year quarter, respectively. Meanwhile, the company’s total assets under management rose 20.6% year-over-year to $631 million.

The consensus revenue estimate of $827.24 million for the fiscal fourth quarter (ended December 2023) represents a 13.5% improvement year-over-year. The consensus EPS estimate of $1.72 for the same quarter reflects a 21.4% year-over-year surge. Moreover, the company topped its revenue estimates in each of the trailing four quarters, which is impressive.

The stock has surged 74.9% over the past nine months and 25.6% over the past three months to close the last trading session at $105.90.

APO’s fundamentals are reflected in its POWR Ratings. It has a B grade for Growth and Momentum. Within the same industry, it is ranked #25. Click here to see the other ratings of APO for Value, Stability, Sentiment, and Quality.  

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KKR shares were trading at $96.01 per share on Thursday morning, up $1.28 (+1.35%). Year-to-date, KKR has gained 15.88%, versus a 4.75% rise in the benchmark S&P 500 index during the same period.

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