Stock of the Day

April 28, 2023

Ares Management (ARES)

$111.79
-$2.24 (-2.0%)
Market Cap: $36.96B

About Ares Management

Ares Management Corporation operates as an alternative asset manager in the United States, Europe, and Asia. The company's Tradable Credit Group segment manages various types of investment funds, such as commingled and separately managed accounts for institutional investors, and publicly traded vehicles and sub-advised funds for retail investors in the tradable and non-investment grade corporate credit markets. Its Direct Lending Group segment provides financing solutions to small-to-medium sized companies. The company's Private Equity Group segment focuses on majority or shared-control investments primarily in under-capitalized companies. Its Real Estate Group segment invests in new developments and the repositioning of assets, with a focus on control or majority-control investments; and originates and invests in a range of self-originated financing opportunities for middle-market owners and operators of commercial real estate. The firm was previously known as Ares Management, L.P. Ares Management Corporation was founded in 1997 and is headquartered in Los Angeles, California with additional offices in the United States, Europe and Asia. Ares Management GP LLC is the general partner of the company.

Ares Management Bull Case

Here are some ways that investors could benefit from investing in Ares Management Co.:

  • Ares Management Co. recently demonstrated strong operational performance by beating analyst expectations in its most recent quarterly report, posting earnings per share of $1.29 against a consensus estimate of $1.28 and generating revenue of $1.43 billion, which exceeded the projected $1.27 billion. This ability to outperform market forecasts on both profitability and top-line growth suggests the company is effectively managing its alternative asset strategies, providing a fundamental basis for potential stock appreciation.
  • The company is currently trading at a price of $118.20, which is significantly below the average analyst price target of $160.47. This substantial discount to the consensus valuation implies that the market may be undervaluing the firm's future earnings potential, offering investors a potential entry point with significant upside room if the stock reverts to its mean as predicted by sell-side analysts.
  • Ares Management Co. offers a high dividend yield of 4.61%, which is attractive for income-focused investors. This yield provides a steady stream of cash flow that can help offset market volatility, making the stock a compelling option for those seeking both capital appreciation and regular income distribution from a large-cap asset manager.
  • Recent institutional activity indicates growing confidence in the company, with Hamlin Capital Management LLC increasing its stake by 6.6% in the third quarter to hold over 1 million shares. Additionally, the company has been actively deploying capital into high-growth sectors, such as investing more than €1 billion in Plenitude and securing additional commitments for Sabey Data Center Properties, signaling strong deal flow and strategic positioning in infrastructure and real assets.
  • The stock has a beta of 1.53, indicating higher volatility than the broader market, which can be advantageous for aggressive investors seeking amplified returns during market upswings. Combined with a "Moderate Buy" consensus rating from analysts, the high beta suggests that Ares Management Co. is positioned to outperform the S&P 500 if market conditions improve, offering a leveraged play on the asset management sector.

Ares Management Bear Case

Investors should be bearish about investing in Ares Management Co. for these reasons:

  • The stock is currently trading at $118.20, which is well below its 50-day moving average of $132.57 and 200-day moving average of $124.22. This technical positioning indicates a persistent downtrend, suggesting that selling pressure has been dominant in recent months and that the stock may continue to face headwinds before any potential reversal can be confirmed.
  • Ares Management Co. carries a high price-to-earnings ratio of 54.22, which is significantly elevated compared to many traditional financial institutions. This high valuation multiple implies that the stock is priced for perfection, leaving little room for error in future earnings reports. Any slight miss in quarterly results could trigger a sharp correction as investors reassess the premium they are paying for the company's growth.
  • Short interest in the stock has been rising, with shares shorted increasing to 15.48 million in the most recent reporting period, representing a short percentage of float of approximately 7.18%. This level of short interest indicates that a significant portion of the market is betting against the stock, which can create additional downward pressure on the price and increase volatility, particularly if the company fails to meet high expectations.
  • The company has a debt-to-equity ratio of 1.00 and a current ratio of only 0.26, indicating that it has limited liquid assets to cover its short-term liabilities. While leverage is common in asset management, a low current ratio suggests that Ares Management Co. may face liquidity constraints in a stressed market environment, potentially limiting its ability to meet immediate financial obligations without accessing external funding.
  • Recent analyst actions have been mixed, with TD Cowen cutting its price target from $163.00 to $159.00 and BofA lowering its target from $160.00 to $156.00. These downward revisions, despite maintaining "Buy" or "Overweight" ratings, suggest that analysts are becoming more cautious about the company's near-term growth prospects, reflecting a potential slowdown in the pace of value creation or increased competition in the alternative asset space.
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