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60% Upside In KKR

Jul. 02, 2017 1:09 PM ETKKR & Co. Inc. (KKR)57 Comments


  • KKR is a premier asset manager selling at an extreme discount.
  • The market overreacted drastically to ordinary earnings volatility.
  • Strong momentum and high forward earnings expectations signal recovery sooner rather than later.

After a precipitous drop in 2015 following quarterly earnings volatility, KKR (NYSE:KKR) shares are trading at a significant discount to intrinsic value. The firm has a stellar track record for growing shareholders' capital and delivering outsized investment returns, yet trades at a substantial discount to its historic multiples. While the shares have already picked up 54% in the last 12 months, there is much more price appreciation left to go. Given its strong momentum and lofty analyst estimates for forward earnings, KKR is poised to gain another 60%. In this article, I will address reasons for the share decline, the underlying strength in KKR's business, valuation and timeline.

The opportunity

It is a universally accepted fact in the finance world that KKR is one of the world's finest money managers. Henry Kravis was one of the pioneers of the leveraged buyout, and since its inception in 1976, KKR has attracted some of the most sophisticated talent in finance, which works as hard if not harder than anybody else for returns on investors' capital and, of course, for performance bonuses.

Despite the asset manager's merits, its shares got pummeled in the latter half of 2015, falling to multiples that had not been seen since the aftermath of the 2008 recession. Amazingly (although not surprisingly), the market fell out of love with KKR not because of weakness in its underlying business or long-term prospects, but rather a single disappointing and pessimistic earnings report.

This drop, of course, was simply a classic display of the market's shamelessly short-term orientation and emotional biases. In names like KKR, it is most valuable to remember the core Graham and Dodd principle that a stock should never be judged on a single quarter's results. From this superficial perspective, it is immediately clear that KKR represents a simple opportunity to take advantage of a

This article was written by

Renaissance Investment Partners is an investment firm that aims to achieve attractive absolute returns while taking substantially less risk than the broader market. The fund focuses on value-oriented investment opportunities, buying securities at a discount and selling them as they approach their intrinsic value.

Analyst’s Disclosure: I am/we are long KKR. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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