Morgan Stanley Turns Bullish On Apollo Global Management: Here's Why

After gaining nearly 75 percent over the past year, Apollo Global Management LLC (NYSE: APO)'s stock still has plenty of runway ahead in 2018, according to Wall Street's latest bullish analyst.

The Analyst

Morgan Stanley's Michael Cyprys upgraded Apollo Global's stock rating from Equal-weight to Overweight with a price target boosted from $32 to $42.

The Thesis

Shares of Apollo Global re-rated higher throughout 2017, but in 2018 the bullish case will continue due to the company's growth prospects, a credit business scaling faster than expected, new initiatives in the pipeline and the company entering a "portfolio harvesting stage," Cyprys said in the Wednesday note. (See the analyst's track record here.) 

Alternative asset managers like Apollo Global are operating in a "Goldilocks environment" that will be supportive of earnings growth, Cyprys said. 

Apollo is expected to double its credit business over the coming three years from its current $157 billion assets under management to roughly $300 billion by 2020, according to Morgan Stanley. Earnings from the credit segment can double from $471 million in 2017 to $954 million in 2020, the analyst said. Some of the initiatives Apollo is focusing on include infrastructure and real estate-themed products and vehicles, Cyprys said. 

Morgan Stanley's new $42 price target is based on a sum-of-the-parts valuation and implies an 11.5x multiple on 2019 estimated EPS, which is a 25-percent premium to the historical valuation of 9.2x. The company deserves a premium valuation given its accelerating growth and new initiatives, Cyprys said. 

Price Action

Shares of Apollo Global gained more than 1 percent early Wednesday morning.

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