Carlyle Group: Shares Break Out With A Still-Compelling Valuation And Earnings On Tap

Happy days are here again for asset managers. At least in the near term, in 2023. After a bruising year of both fund flows and falling assets under management (AUM), money management firms struggled in recent quarters. There’s hope on the horizon, though, as weekly flows into both stocks and bonds have been robust this year. Moreover, the asset class quilt of total returns shows green across the board. That should help both traditional and alternative asset managers this year.

One name I have been covering is Carlyle Group (NASDAQ:CG) – is the stock a buy today after an awful 2022? Let’s check it out.

2023: Bullish Returns So Far

According to Bank of America Global Research, Carlyle is one of the largest alternative asset managers in the world, and its business spans three segments – global private equity, global credit, and global investment solutions.

The Washington D.C.-based $12.5 billion market cap Capital Markets industry company within the Financial sector trades at a low 7.3 trailing 12-month GAAP price-to-earnings ratio and pays a high 3.7% dividend yield. It has been a popular pick on CNBC’s Fast Money Halftime report in the last few days – but you and I should do our own homework.

On valuation, analysts at BofA see earnings falling sharply this year after steep EPS declines in 2022 – but that estimate was done several months ago before the firm topped Q3 earnings expectations while reported strong realized performance-based revenue as well as the intense Q4 stock and bond market rallies that persisted into this year. I expect upward revisions to these estimates before long – perhaps immediately after the firm reports results on February 7.

With a low 8.3 forward operating earnings multiple, much pessimism is baked into the stock price considering that its 5-year average P/E is 12.5. An elevated price-to-book ratio is concerning, but better asset value pricing should help that this year. Overall, I still see the stock as cheap, but has the trend changed on the chart? I’ll discuss that later. In general, if we assign a 12 multiple on $4 of earnings, that’s a stock price of $48.

Carlyle: Earnings, Valuation, Dividend Yield Forecasts

Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q4 2022 earnings date of Tuesday, February 7, before the open with a conference call immediately after results hit the tape. You can listen live here. The calendar is light on risk catalysts aside from that report.

Corporate Event Risk Calendar

The Technical Take

Here’s where things get interesting for CG. Notice in the chart below that the stock has finally broken its downtrend that began after it printed an all-time high in late 2021 around the lows in interest rates and peak in speculative fervor around IPOs and crypto. After about 12 months, the trend broke, and the bulls have taken charge.

CG is now back above its flattening 200-day moving average and the move comes on strong RSI momentum, which I like to see. What I don’t see, though, is a solid jump in volume, but a chart is never perfect. There’s upside resistance near $40, $46, and $51. Downside support is in the $30 to $32 area, so long here with a stop below $30 makes sense. There’s also big volume by price in the $28 to $31 range that should offer cushion on a larger move down.

Overall, I have turned bullish technically.

CG: Bullish Breakout After Touching Key Long-Term Support

The Bottom Line

I continue to like CG’s valuation, and recent developments make me fundamentally optimistic about the name. The chart has also improved, yielding an upgrade from me from hold to buy.