The Blackstone Group is best positioned among the asset managers in the United States during the fourth quarter of 2014, according to Morgan Stanley analyst Michael Cyprys.

Blackstone expected to deliver cash earnings growth

According to Cyprys, Blackstone’s position is strong compared with its peers in the industry in terms of harvesting cycle with recent acceleration of real estate exists, capital raising and portfolio laddering.

Blackstone Group US Asset Managers

The analyst also noted that the BCP V catch-up of Blackstone was solid to boost its cash earnings in the fourth quarter with real estate exit activity ramping that creates favorable cash earnings going forward.

Cyprys estimated that the cash earnings growth of Blackstone will be 53% year-over-year in the fourth quarter to $1.04 BCP V catch-up worth ~22 cents to cash earnings. Such growth is “supported by strong exit activity and publics up over 10% in BCP V.”

The analyst also expected the Blackstone to be the only alternative asset manager that would report year-over-year cash earnings growth in the fourth quarter.  Cyprys has an Overweight rating for the company’s stock with a price target of $45 per share.

Blackstone Group US Asset Managers

Blackstone’s potential risk

According to Cyprys noted that harvesting delays could serve as potential risk for Blackstone. The analysts explained, “An extended pull-back in financial and capital markets that delays harvesting of investments and dampens returns which lower cash earnings.”

He added that a potential change in carried interest (performance fee) taxation likely remains a primary concern among investors.

Blackstone Group US Asset Managers

Alternative managers’ 4Q performance

According to Cyprys, the alternative managers in the industry are expected to deliver cash earnings growth of 13% quarter-over-quarter and 11% in dividend growth in the fourth quarter due to robust portfolio harvesting activity.

In terms of the pace of exit activity in 2015, Cyprys believed that it will not decline substantially instead he expects the momentum to continue this year until 2016.  The pace of exit activity would drive cash earnings higher and support stocks.

“We view near-term mark-to-market risk in 4Q’s accrual EPS as a distraction from the long-term value creation by alternative managers…We view market dislocations as an attractive deployment opportunity” for alternative managers,” said Cyprys.

Blackstone Group US Asset Managers

Stock ratings for other alternative managers

Cyprys also recommended an Overweight rating for KKR & Co.He noted that the closing of Wild Flowers and Versatel transactions should boost the cash earnings of the company in the fourth quarter.

KKR’s EPS volatility is expected due to lower marks in energy, HY and foreign investments. A cash realization from Boots is expected in the first quarter of 2015, which supports a strong outlook for KKR this year.

Cyprys issued an Equal Weight rating for The Carlyle Group.  According to him, HD Supply, Altice, Booz Allen Hamilton and China Recycling Energy should drive the company’s cash earnings with potential EPS volatility from large exposure to energy related investments in the fourth quarter.

The analyst recommended an Underweight rating for Apollo Global Management. He expected the company’s exits inAthlon Energy and Taminco would support its cash earnings in the fourth quarter.

Blackstone Group US Asset Managers