KKR & Co Inc (KKR, Financial) recently showcased a notable daily gain of 7.73%, complementing a 3-month gain of 21.4%. With an Earnings Per Share (EPS) of $2.73, investors are prompted to consider whether the stock is significantly overvalued. The following analysis delves into KKR's valuation to provide a clearer picture of its stock's intrinsic worth.
Company Introduction
KKR & Co Inc (KKR, Financial) stands as one of the leading global alternative asset managers, boasting $518.5 billion in total assets under management, including $420.0 billion in fee-earning AUM as of June 2023. The company operates two core segments: asset management, which covers private markets—private equity, credit, infrastructure, energy, and real estate—and public markets—primarily credit and hedge/investment fund platforms. Additionally, KKR has expanded into insurance, following the acquisition of a 61.5% economic stake in Global Atlantic Financial Group. With a current stock price of $74.74 and a GF Value of $38.65, the question arises: is KKR's stock significantly overvalued?
Summarize GF Value
The GF Value is an exclusive measure that reflects the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, suggesting potential poor future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the prospect of higher future returns. Currently, KKR's stock price suggests significant overvaluation.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with weak financial strength can lead to a higher risk of capital loss. The financial strength of a company is pivotal when considering stock purchases. KKR's cash-to-debt ratio of 1.88 ranks below average in the Asset Management industry. The company's overall financial strength scores a 4 out of 10, indicating poor financial health.
Profitability and Growth
Consistent profitability over time suggests a lower risk for investors. KKR has maintained profitability for 9 out of the past 10 years, with a revenue of $12.60 billion and an Earnings Per Share (EPS) of $2.73. However, its operating margin of 10.94% is below the industry median. The company's profitability stands at a fair ranking of 7 out of 10. In terms of growth, KKR's 3-year average annual revenue growth rate is 0.3%, which is less impressive compared to industry peers. Its EBITDA growth rate also falls short, highlighting potential concerns for value investors.
ROIC vs WACC
An effective way to assess a company's profitability is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A higher ROIC than WACC suggests a company is generating value for shareholders. KKR's ROIC of 0.48 is significantly lower than its WACC of 10.5, indicating that it may not be creating shareholder value effectively.
Conclusion
In summary, KKR (KKR, Financial) appears to be significantly overvalued at its current market price. The firm's financial strength is concerning, and while its profitability is fair, its growth is not competitive within the Asset Management industry. For in-depth financial insights into KKR, you can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
