Once and Future Buyout King

06/16/2009 1:00 pm EST


Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

Bryan Perry, editor of Cash Machine, says that Blackstone Group, whose IPO heralded the top of the market, is a good buy now with a very attractive yield.

One of the most prominent names in the asset management and hedge fund industry is Blackstone Group LP (NYSE: BX), which launched their initial public offering (IPO) at the top of the bull market in June 2007. This offering received huge publicity at the time and did, in fact, mark the end of the rally.

Today, with the shares of BX trading off by about 70% from its 2007 high, this leading hedge fund [and private equity] operator is looking at a stricter regulatory environment, more transparency, tighter standards for the use of leverage and lower management and performance fees. But the cash flow from their portfolios is strong, providing investors who buy shares at this depressed level a chance to lock in a 10% current yield.

Blackstone trades as a public partnership and is one of the world's leading investment and advisory firms. BX's alternative asset management businesses focuses on management of corporate private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation vehicles and closed-end mutual funds.

[Last month,] Blackstone reported first-quarter 2009 results, which came in at a seven-cent loss versus the ten-cent loss consensus. The company also recorded a net income loss of $93 million, which was much better than the $827-million loss in the fourth quarter of 2008 and about flat from the $94-million loss in the first quarter of 2008.

Management and advisory fees, $344.6 million, were up over the same quarter last year ($320.8 million) but down from the fourth quarter in 2008 ($389.2 million), while adjusted cash flow was $75 million, up from a $4-million loss in the first quarter of 2008. Following the upbeat report, BX shares spiked 25% to $14.50 before settling back down to its current price.

Blackstone [also] declared a quarterly distribution of 30 cents per common share. I was assured that the partnership was confident they could cover the $1.20 annual payout for 2009 with the possibility of a hike in 2010 if the economy rebounds. That $1.20 annual distribution translates to [a 10%+] current distribution yield, and BX expects to use adjusted cash flow from operations to make the cash distributions on a quarterly basis. That's good enough for me.

[In] May, shares of BX rallied from $8 to $14 and have now pulled back to the low $11 area where the stock presents a buying opportunity for investors seeking to establish new positions. Revenues for 2010 are expected to jump by 90%, and earnings are forecast to explode by 196% over 2009 with nine analysts looking for a composite 83 cents per share in earnings. Attach a market P/E multiple of 17x, and we have a $14 target price, or a 35% move higher—not including the 10%+ yield. Buy Blackstone Group up to $11.

Subscribe to Cash Machine here…

Related Articles on STOCKS

Keyword Image
04/18/2019 9:51 am EST

Japan’s lost decade began in the early 1990s and arguably is in its third decade. Is it a harb...

Keyword Image
Eddy's Ready for Robots
04/18/2019 5:00 am EST

The other day, I came face to face with an astounding sight — an electronic ordering kiosk at ...

Keyword Image
Beware Magazine Covers
04/17/2019 4:36 pm EST

A recent Barron’s cover labeling the current 10-year-old bull market as “unstoppable&rdq...