Apollo Global Management's shares fall on analyst downgrades

LOS ANGELES, Calif. – Shares in Apollo Global Management LLC ended lower on Friday after some Wall Street analysts downgraded the investment firm, noting its share price is approaching their growth benchmarks.

THE SPARK: In a research note, Morgan Stanley analyst Matthew Kelley downgraded Apollo to “Equal-weight” from “Overweight,” saying the stock is now close to his price target. Citigroup analyst William Katz lowered his rating on Apollo to “Neutral” from “Buy,” noting that he sees some consolidation likely ahead now that shares are up more than 80 per cent this year.

THE BACKGROUND: Founded by Leon Black in 1990, Apollo buys troubled companies using borrowed money and tries to sell them for more, usually years later, in a transaction known as a leveraged buyout. The company launched its IPO at the end of March 2011 after it was put off since April 2008 due to the recession.

THE ANALYSIS: In his research note, Kelley said bullish sentiment toward the strategic value of Apollo’s subsidiary Athene Asset Management has recently driven the stock above his price target, which is now $33.

Kelley says company distributions are likely to drive the stock in the near term, though he expects distributions will decline next year.

In a separate note, Katz said Citi’s decision to downgrade Apollo from its “Buy” rating was mostly valuation driven.

Looking ahead, Katz sees Apollo generating somewhat slower organic growth, particularly in its credit business. He also sees the pace of new private equity investments to be likely slower than the typical $3 billion to $4 billion equity deployed annually by the company.

SHARE ACTION: Down 48 cents, or 1.5 per cent, to $31.52 regular trading Friday. The stock is up 82 per cent this year.