On Monday, Piper Sandler, a well-known financial firm, upgraded its rating on GCM Grosvenor Inc. (NASDAQ: GCMG) from Neutral to Overweight. Accompanying this upgrade was an increase in the price target for the company's shares, set at $14.00, up from the previous $12.50. This adjustment reflects a more optimistic outlook on the firm's financial prospects. The alternative asset manager, with a market capitalization of $2.2 billion, has demonstrated strong momentum with a 37% return over the past year.
The upgrade was prompted by a positive change in the perception of the alternative investment space. Analysts have noted that the current market valuation of GCM Grosvenor does not align with its potential, especially given the recent shifts in sentiment. According to InvestingPro analysis, the company appears slightly undervalued at current levels, while maintaining a solid 3.7% dividend yield and having raised dividends for three consecutive years. The company's discounted trading valuation is seen as unwarranted in light of the positive developments expected in the near future.
Piper Sandler anticipates that GCM Grosvenor will experience a boost in fundraising efforts and growth in direct-oriented investments. Additionally, a rise in deal activity is expected to drive the company's carried interest and performance revenues. The company has already demonstrated solid growth momentum, with revenue increasing by 8.2% in the last twelve months.
While the timing of these developments is uncertain, the firm has a significant amount of unrealized carry that could be monetized in the upcoming quarters and years, which is now seen as increasingly likely. For deeper insights into GCMG's growth metrics and financial health, investors can access the comprehensive Pro Research Report available on InvestingPro.
The financial firm's outlook is buoyed by several macroeconomic factors, including the Federal Reserve's rate-cutting cycle, reduced regulation, and a pro-growth and pro-business administration. These elements, along with pent-up demand, are projected to contribute to a surge in transactions, which would benefit GCM Grosvenor.
The new price target of $14.00 is based on the shares trading at 18 times the estimated earnings for 2025. This valuation still represents a considerable discount compared to peer companies, which are trading at nearly 25 times their expected earnings.
Piper Sandler's analysis suggests that this presents an attractive entry point for investors interested in GCM Grosvenor.
In other recent news, GCM Grosvenor has posted robust financial growth in its third quarter of 2024, with noteworthy increases in fee-related earnings and adjusted net income.
The asset management firm's fee-related earnings rose by 18% year-to-date, while adjusted net income climbed by 24% compared to the previous year. Record highs were reported in assets under management (AUM) at $80 billion, with fee-paying AUM also hitting a record at $64 billion.
Piper Sandler revised its outlook on GCM Grosvenor, raising the price target to $12.50 from the previous $11.50, while maintaining a Neutral rating. The firm adjusted its earnings per share forecasts for GCM Grosvenor for 2024 and 2025 upward, reflecting the company's recent performance. Piper Sandler also updated GCM Grosvenor's expected private markets management fee growth for 2024, now projecting an increase of 9% to 11%.
In terms of future expectations, GCM Grosvenor's management aims to double fee-related earnings from 2023 to 2028 and anticipates exceeding $2 billion in fundraising in the second half of 2024.
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