Goldman Sachs Upgrades Apollo Global, Downgrades Legg Mason

Goldman Sachs Upgrades Apollo Global, Downgrades Legg Mason

Analysts Upgrade Apollo Global Management:

Analysts at Goldman Sachs Equity Research upgraded their rating for shares of Apollo Global Management LLC (NYSE:APO) to ‘Buy’ with a price target of $30, in a report released on Wednesday.

The analysts cited in their report that the stock of Apollo Global Management LLC (NYSE:APO) is expected to outperform because of three reasons, including a compelling pipeline of realizations, accelerating free related earnings (FRE) growth, and recent valuation pullback (implied performance fee multiple down to 3.5x vs. 5.5x in April).

Goldman Sachs Upgrades Apollo Global, Downgrades Legg Mason

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Goldman Sachs analysts note that the stock price of the global investment management firm was behind the S&P 500 by 11 percent in the previous month, but they expect the stock to re-rate as Apollo Global Management LLC (NYSE:APO) monetized its $17 billion portfolio.

The analysts expect the company to generate around $3 to $4 per unit in incremental value from Athene, particularly if potential new AuM from Aviva drives fee-related margin expansion. They projected a 33 percent (11 percent yield) total return opportunity for Apollo Global Management LLC (NYSE:APO) in 12 months.

Last Month, Apollo Global Management LLC (NYSE:APO) reported a 72 percent increase in profits for the first quarter of 2013. Its total economic income was $792 million, up from $462 million in the same period a year earlier. Its economic income after taxes per share was $1.89, higher than the $1.10.

Analysts Downgrade Legg Mason

On the other hand, Goldman Sachs analysts downgraded their rating for Legg Mason, Inc (NYSE:LM) to ‘Sell’. The analysts explained, “The fixed-income performance of the company is declining and its forward margin outlook appears muted with the firm mostly reinvesting cost saves (with incremental risk in affiliate equity sharing agreements).”

They believe that the YTD out-performance of the shares of Legg Mason, Inc. (NYSE:LM) is overdone. They expect a 13 percent downside for the stock, citing pressures in near-term flows or results as well as lingering risks from affiliate restructuring.

According to the analysts, their investment opinion for the stock of Legg Mason, Inc. (NYSE:LM) will become positive if the company demonstrates improvement in the flow outlook, better investment performance for key strategies/affiliates, and if the company changes its product mix to benefit from secular industry trends.

In addition, the analysts said their position towards the company will also become bullish on the organic growth prospects of Legg Mason, Inc. (NYSE:LM) if it will expand its retail exposure through Western and further capitalize on global distribution opportunity.

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