Recent IPO Yields Over 8% And Is Hitting On All Cylinders

Aug.27.12 | About: Oaktree Capital (OAK)

I am always amazed how most IPOs slide off most investors' radars quickly after their debuts. Ironically, months after a company goes public, it sometimes turns out to be the best time to invest in these shares. Oaktree Capital (NYSE:OAK) went public in April and even though it had a stellar first earnings report, the shares are still down some 10% from their debut and the equity yields over 8% to boot.

Positive catalysts in August for Oaktree:

  • It reported earnings earlier in the month of 89 cents a share, easily surpassing estimates of 61 cents a share.
  • Revenues also rose over 13% Y/Y to some $341mm, beating estimates by $75mm.
  • The company raised its declared dividend to 79 cents a share from the prior quarter's 55 cents a share
  • An insider made a $100k plus purchase a few days after the earnings announcement.

Oaktree Capital Group operates as a global investment management firm that focuses on alternative markets. It manages investments in a number of strategies within six asset classes, including distressed debt; corporate debt, including high yield debt and senior loans; control investing; convertible securities; real estate; and listed equities.

(Business description from Yahoo Finance).

Four reasons OAK is a solid value pick for income investors at $38 a share:

  1. The company provides a robust 8.3% yield (based on annualizing its last quarterly payout) at its current stock price. Based on earnings projections, this yield should move considerably higher over the next year as well.
  2. Earnings are solid and growing. The company should make $3.14 a share in FY2012 and analysts project an impressive $4.50 in EPS for FY2013.
  3. The median price target on OAK by the five analysts that cover the shares is $48. Price targets range from $42 to $55 a share.
  4. In addition to crushing estimates in its first earnings report as a public entity, consensus earnings estimates for both FY2012 and FY2013 have risen significantly over the past month.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OAK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.