Apollo Global's $9 EPS Target For 2026 Will Prove A Low Bar To Beat: Analyst's Spotlight On Athene Merger

BMO Capital Markets analyst Rufus Hone reiterated an Outperform rating on Apollo Global Management, Inc. APO, raising the price target to $103 from $96.

Strategic benefits of the APO-Athene combination are more appreciated, as investors are increasingly comfortable with the financial/strategic benefits of the combination, notes the analyst.

According to Hone, in combination with Apollo, Athene is a structurally less risky and higher-growth business (versus a standalone lifeco).

The complete alignment of interests created by the merger allows Apollo-Athene to double down on asset origination (critical enabler of durable FRE/SRE growth), rapidly scale ACS, and significantly expand its third-party yield business, the analyst adds.

The analyst continues to believe APO's >$9 EPS target (2026E) will prove a low bar to beat and view his current forecasts (>$9 EPS in 2025) as conservative. 

APO's annual asset origination capacity totals ~$100 billion currently, with ~50% coming from APO's origination "platforms" and ~50% from its "high-grade alpha" and "traditional" sources (e.g., CLOs).

While Atlas is already APO's largest individual origination platform, APO sees significantly more growth ahead, and the analyst expects Atlas can account for the majority of the ~$50 billion increase in origination capacity needed to reach its medium-term target (~$150 billion), implying ~$30 billion+ growth in Atlas's origination capacity.

Overall, the analyst thinks that APO appears the best-positioned alternative for higher interest rates; Athene is benefiting from record organic volume growth, while its profitability is expanding due to rising rates.

The analyst raised FY23 Core EPS estimate to $7.02 from $6.98. For FY24, the analyst raised estimates to $8.59 from $8.41.

Price Action: APO shares are trading higher by 0.54% to $91.64 on Friday.