On Monday, Deutsche Bank (ETR:DBKGn) updated its outlook on KKR & Co. (NYSE:KKR), raising the investment firm's stock price target to $129 from $120 while maintaining a Buy rating. The adjustment follows the announcement made last Friday that KKR will be added to the S&P 500, a move anticipated to positively influence the stock's performance.
The inclusion in the S&P 500 is seen as a favorable development for KKR, expected to support the stock both immediately and in the future. The significance of the S&P 500 as a major U.S. stock index cannot be overstated, with nearly $12 trillion in assets under management pegged to it at the end of 2022. This figure is estimated to be closer to $16 trillion currently, after accounting for the index's approximately 39% return from the end of 2022 through June 7, 2024.
Deutsche Bank's stance is that this inclusion could lead to increased buying interest in KKR shares over time, especially considering the ongoing trend of positive net flows into indexed products. The analyst at Deutsche Bank believes that the entry into the S&P 500 warrants a 10% premium on KKR's fee-related earnings (FRE), insurance, and strategic holdings earnings streams.
This valuation approach is similar to the one Deutsche Bank applied to Blackstone (NYSE:BX) after its addition to the S&P 500 Index in September 2023. Blackstone, which is also rated Buy by Deutsche Bank, only has the FRE stream to apply the 10% premium to, according to the analyst's methodology.
KKR's new price target and sustained Buy rating reflect the analyst's confidence in the company's earnings potential and the anticipated positive impact of its upcoming S&P 500 listing.
In other recent news, KKR & Co, CrowdStrike Holdings (NASDAQ:CRWD) Inc, and GoDaddy (NYSE:GDDY) Inc are set to join the S&P 500 index, indicating a significant development in the market landscape. Concurrently, KKR has been active in a series of substantial investments. The firm, along with Global Infrastructure Partners (GIP), is leading a $25 billion investment initiative in the Indo-Pacific region, targeting sectors such as energy, transportation, water and waste management, and digital infrastructure.
In addition to these developments, KKR has acquired a majority stake in Agiloft, a leader in contract lifecycle management (CLM) software, aiming at Agiloft's growth and market share expansion. Notably, KKR, in partnership with Singapore Telecommunications Ltd. (SingTel), is also leading the bid to acquire a minority stake in STT Telemedia Global Data Centres, emphasizing the increasing demand for data centre services in the Asia Pacific region.
These recent developments underscore KKR's active role in the market, ranging from joining prestigious indices to leading substantial investment initiatives and acquisitions.
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