Deutsche Bank Markets Research published a research report Thursday, May 1, on investment management firm Oaktree Capital Group LLC (NYSE:OAK). DB analyst Brian Bedall is bullish on Oaktree, arguing the value-oriented firm is set for solid organic growth for at least the next 18 months. Despite his belief (and the company’s warnings) that second and third quarter earnings would be weak), Bedell rates the stock a Buy and has placed a $65 target on the stock.

Oaktree Capital’s organic growth story

Bedell begins the report by pointing out that Howard Marks’ Oaktree Capital Group LLC (NYSE:OAK) appears to be in the basing phase of a classic organic growth story. He argues that the assets and the economy need another quarter or two to mature and then the company is poised for several quarters of solid earnings growth.

He says Oaktree Capital Group LLC (NYSE:OAK)’s success is coming from leveraging its investment expertise. “While this could pressure the stock modestly this summer, the intermediate-to-long-term story is improving, as Oaktree Capital is leveraging its investment expertise in core credit and extension strategies such as emerging markets, to generate relatively strong organic growth (over 10% annualized this quarter). This is positioning Oaktree Capital well for stronger fee-related earnings in 2015 (we forecast 15% growth from 2014 on p/unit basis) and continued build in accrued incentives should improve realizations and DE profile in 2015…”

4Q 2014 and beyond

Oaktree capital valuation

The Deutsche Bank report emphasizes that Oaktree Capital Group LLC (NYSE:OAK) is just getting revved up, and stands to boost earnings significantly as the global economy revs up. Bedell decided to reduce Oaktree 2Q14 DE p/unit to $0.73 from $1.21 based on company guidance, but he expects the trend to reverse by late 2014. He reduced 2014E DE p/unit to $4.68 from $5.22.

Oaktree capital forecast

For 2015E Oaktree Capital Group LLC (NYSE:OAK) DE p/unit, he only made a minor adjustment of $5.26 from $5.29. He made a slight upward revision to 2016E DE p/unit from $5.41 to $5.48. He also increased his ANI p/unit estimates to $4.41 from $4.33 at 2014E, to $4.41 from $4.42 at 2015E and to $4.70 from $4.62 at 2016E. His distribution p/unit changed to $3.33 from $3.79 for 2014E, to $3.82 from $3.89 for 2015E, and $4.01 from $4.00 for 2016E.