Blackstone Group: Alternative Assets

03/23/2017 2:50 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Blackstone Group LP (BX) offers alternative asset management; it raises capital for, invests in and manages various investment vehicles, including private equity, real estate and hedge funds, notes Roy Ward, editor of Cabot Benjamin Graham Value Investor.

BX also provides financial advisory services. Blackstone is a limited partnership and passes income, gains and losses through to investors.

The income, gains and losses are reported on IRS Schedule K-1 sent to investors after each year-end. Blackstone’s K-1 is complicated. You may need to seek professional tax help if you buy BX shares.

Blackstone reported exceptional fourth-quarter results. Growth was fueled by robust investment returns on all investment funds.

Strong growth also was powered by increased fee income. The superior investment returns attracted substantial capital inflows, driving assets under management significantly higher.

Blackstone’s revenue and earnings vary wildly from quarter to quarter, depending on gains and losses from asset sales and fees earned.

The company has been actively selling some of its major real estate holdings, with a focus on hotels, to institutional investors in China. These sales will generate substantial revenue and earnings in 2017. Revenue will likely advance 19% in 2017 and EPS (earnings per share) will jump 30%.

At 12.6 times current earnings with a PEG ratio of 0.87, BX is clearly undervalued. The dividend yield stands at 6.4%, which is very attractive. Earnings will receive an additional boost if interest rates rise, inflation increases, and/or financial regulations are eased by the Trump administration.

However, I would caution Blackstone’s’ transactions with Chinese investors could become difficult. Blackstone’s stock price will likely rise 36% to my minimum sell price target of $39.96 within two years.

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