Morgan Stanley Says Buying The Dip In The Carlyle Group Could Bring 50% Return

Weighing in the prospects of The Carlyle Group LP CG raising the largest ever North American dedicated buyout fund — and the stock's recent underpeformance — one analyst sees a possible 50-percent return in shares of the company. 

The Analyst

Morgan Stanley analyst Michael Cyprys maintained an Overweight rating and $28 price target for the shares of the company.

The Thesis

Carlyle's flagship North American buyout fund is close to reaching a cap of $18.5 billion, exceeding the $15 billion target suggested by a recent Bloomberg article, analyst Cyprys said in a Monday note. Carlyle recently guided toward fourth quarter fundraising of 2.5 times the level seen during the third quarter, suggesting a total of about $18 billion, Cyprys said. 

With an estimated $6 billion raised by Carlyle's Europe and Asia buyout funds, Cyprys estimates that Carlyle now has $30 billion of global corporate private equity buying power — $5 billion more than the largest global buyout fund, namely Apollo Investment Corp. AINV's $24.6-billion Fund IX.

"This fundraising, much of which should close during 4Q17, should give investors increased confidence in CG's ability to hit and possibly exceed its $100b target," the analyst said. 

Morgan Stanley projects that the fundraising will drive revenue growth and margin expansion in the second half of 2018 and into 2019. With this catalyst ahead, the firm sees the recent weakness in the company's shares (a 15.5-percent pullback since the company's announcement of the management transition) as a buying opportunity.

The Price Action

Carlyle shares are up about 32 percent year-to-date, although they have lost about 19 percent from an early October intra-day high of $24.85.

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