Acknowledging the Street is already way long the stocks, Bernstein nevertheless starts coverage of Apollo Global (APO), Blackstone (BX), and KKR with Outperform ratings, noting P/E multiples of 11x for alternatives is way below that of traditional asset managers at 16x (a fact also noted by Blackstone's Stephen Schwarzman).
At current valuations, says analyst Luke Montgomery, investors are paying only for cash flows from existing funds and get the going-concern value and any positives from yet-to-be-launched funds for free. "More important, they get a free option on the significant growth opportunities we see for these firms."
“Their advantage is extremely difficult to replicate, which means these firms have a large halo effect and are operating in a league of their own with little competition in their path. Meanwhile, the larger scale of these firms is generating outsized cash flow that is supporting a push into higher growth, less scale-constrained strategies, like credit and real estate."
Apollo is Montgomery's "Credit Growth Play," while Blackstone is "The Innovation as Cycle Muting Play," and KKR is "The Economies of Skill Play." If he had to pick from among the three, it would be KKR given valuation and its differentiated strategy.