A Trio of Players

06/15/2017 2:52 am EST


Richard Moroney

Editor, Dow Theory Forecasts

In Upside — a speciality advisory service focused on small to mid-cap stocks — editor and quantitative analyst  Richard Moroney looks at a trio of players in financial products, investment banking and asset management.

Apollo Global Management (APO), a leading alternative asset manager, focuses on private equity, real estate, and credit securities.

On December 31st, assets under management (AUM) totaled $192 million, up 13% from a year earlier. Credit investments, which include specialty loans and distressed debt, accounted for 71% of assets.

Since 2006, Apollo has grown assets at a 22% annualized rate. Clients include pensions and endowments. The stock earns a Quadrix Overall score of 99, reflecting outstanding marks for Momentum (99) and Value (92).

Apollo comes with special risks, reflecting the speculative and illiquid nature of some of its investments. In addition, the company was scheduled to report March-quarter results on April 28th.

Buying ahead of an earnings release is chancy, but expectations for the quarter have been rising over the last month. Wall Street targeted per-share profits of $0.63, compared to a loss in the year-earlier period.

For 2017, per-share earnings are projected to dip slightly to $2.33. Apollo is a limited partnership, so stockholders receive a K-1 form to help file taxes. The company has a variable dividend, paying most of its distributable earnings on a quarterly basis. Apollo, yielding 7%, is being initiated as Buy.

Investment bank Evercore Partners (EVR) earns an Overall score of 98, supported by ranks of 60 or higher for all six Quadrix categories.

The shares have rallied 15% in 2017, versus 3% for the median stock in the S&P 1500 diversified-financial industry. Yet Evercore shares trade roughly in line with industry medians for trailing P/E (18) and P/E based on current-year estimates (15). The stock yields 1.8%, versus its industry median of 1.6%.

Evercore’s high exposure to the U.S. (73% of 2016 revenue) is helping to drive growth. The volume of global deals announced in the March quarter rose 12%, while U.S. deals jumped 19%.

But Evercore has a smaller global presence than many of its larger competitors. Uncertainty over the U.K.’s decision to leave the European Union and the direction of U.S. policies adds risk to Evercore’s business.

Still, near-term prospects look bright. March-quarter earnings per share were projected to be up 75% to $1.10 on revenue of $364 million, up 42%. Analyst estimates have risen sharply over the past 90 days.

Additionally, J.P. Morgan (AMJ) and Citigroup (C) posted strong capital-markets results, boding well for Evercore. Evercore was scheduled to report results on April 26th, after our publishing deadline. The stock is rated Best Buy.

Primerica (PRI) saw CPO increase 13% to $292 million in 2016. Capital spending jumped 85%. The company spent $150 million on stock repurchases, trimming the share count by 5%.

Primerica’s dividend yield of 0.9% looks modest compared to an average of 2.4% for financial stocks in the S&P 400 and S&P 600. However, Primerica boosted its dividend 12% over the past year and 28% annually over the last three years. In November, management authorized a $200 million share-repurchase program.

A leading distributor of financial products to middle-income households, Primerica insured roughly 5 million lives and had more than 2 million investment accounts on December 31st.

The company will announce March-quarter results on May 9th. The consensus expects per-share profits of $1.17, up 26%, on revenue growth of 10%.

Over the past four quarters, Primerica topped the consensus profit estimate three times. Analyst estimates are trending higher for 2017, with the consensus expecting 16% higher profits. Primerica is a Best Buy.

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