With shares of Apollo Global Management LLC APO 2.36% down 12.5 percent this year, now is a compelling time to buy, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Michael Cyprus reiterated an Overweight rating on Apollo with a $41 price target.

The Thesis

Cyprus gave three reasons why Apollo is at an inflection point that’s not being priced into the stock:

  • New initiatives will accelerate growth in management fee earnings, along with faster scaling in the credit business and fees turning online, the analyst said. The “stickier earnings steam” should drive a higher multiple, he said.
  • Performance fees in private equityare expected to double in 2018 compared to 2017, a pace Cyprus said should be sustained over the next few years. Harvesting from Fund VIII, energy funds and credit funds will be key fee generators, he said.
  • Cyprus noted that only $1.03 per share of value for performance fees has been priced into the stock. A sum-of-the-parts valuation leads him to believe there should be $13.14 per share of value.

The analyst said expects 27 percent of the current share price to be returned in dividends over the next three years.

Price Action

Apollo shares were up 1.91 percent at the time of publication Monday morning.