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Carlyle (CG) Rides on Organic Growth, Rising Expenses Ail
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The Carlyle Group (CG - Free Report) is growing organically though its increasing assets under management (“AUM”) balance and fund management fees. The company’s strong liquidity and sustainable capital deployment are positives as well. However, a rise in expenses and competition for investment opportunities are concerning.
Carlyle has been witnessing solid organic growth as indicated by revenues that grew at a compound annual growth rate (CAGR) of 61.3% over the last three years (ended 2021). Moreover, its focus on expanding the scale of investment platforms, building out infrastructure and real estate credit, foraying into new avenues, and institutionalizing the firm to drive higher incremental margins might support the uptrend in revenues in the future.
Further, Carlyle’s fee-earning AUM and total AUM consistently demonstrate strong growth, aided by decreasing net outflows. Over the last three years (2019-2021), fee-earning AUM witnessed a CAGR of 9.6% and total AUM recorded a CAGR of 15.8%. The company’s global presence and efforts to expand its business are likely to continue aiding AUM growth.
As of Dec 31, 2021, Carlyle had total debt worth $2.07 billion. Nonetheless, as of the same date, it held $2.5 billion of cash and had full availability under a $775-million revolving credit line. Thus, with sound liquidity and a manageable debt level, the company is expected to be able to meet its near-term debt obligations even if the economic situation worsens.
Also, the company’s capital-deployment activities seem impressive. In February 2022, its board of directors approved a hike in dividend, increasing the total to an annual rate of $1.30 per share. The dividend is scheduled to be paid in May 2022. Also, as of Dec 31, 2021, $38.2 million of repurchase capacity remained available under the share repurchase program. Such capital-deployment activities seem sustainable, given the company’s strong balance sheet position and consistent earnings strength.
However, Carlyle has been witnessing a persistent rise in expenses over the past few years. The company’s costs witnessed a CAGR of 49.8% in the last three years (ended 2021). We believe that such escalating costs might weigh on its expense base to some extent in the upcoming quarters and hinder bottom-line growth.
Also, Carlyle competes with a broad spectrum of regional and global financial institutions and markets for investment opportunities and investors. Competition is particularly stiff in the emerging markets where local firms tend to have more prominent relationships with the companies in which Carlyle targets to invest.
This apart, greater reliance on advisory firms or in-house investment management may reduce fund of funds’ appeal to large institutional investors. As Carlyle continues to target high net worth investors, it also faces competition from mutual funds and investment firms that have competing products.
Currently, Carlyle carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have gained 27.2% compared with 7.4% growth recorded by the industry.
Over the past six months, shares of PCB have jumped 17.5%, whereas FBIZ and BOH stocks have rallied 16.4 and 3.1%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised marginally upward, while the same for PCB Bancorp and Bank of Hawaii has stayed constant.
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Carlyle (CG) Rides on Organic Growth, Rising Expenses Ail
The Carlyle Group (CG - Free Report) is growing organically though its increasing assets under management (“AUM”) balance and fund management fees. The company’s strong liquidity and sustainable capital deployment are positives as well. However, a rise in expenses and competition for investment opportunities are concerning.
Carlyle has been witnessing solid organic growth as indicated by revenues that grew at a compound annual growth rate (CAGR) of 61.3% over the last three years (ended 2021). Moreover, its focus on expanding the scale of investment platforms, building out infrastructure and real estate credit, foraying into new avenues, and institutionalizing the firm to drive higher incremental margins might support the uptrend in revenues in the future.
Further, Carlyle’s fee-earning AUM and total AUM consistently demonstrate strong growth, aided by decreasing net outflows. Over the last three years (2019-2021), fee-earning AUM witnessed a CAGR of 9.6% and total AUM recorded a CAGR of 15.8%. The company’s global presence and efforts to expand its business are likely to continue aiding AUM growth.
As of Dec 31, 2021, Carlyle had total debt worth $2.07 billion. Nonetheless, as of the same date, it held $2.5 billion of cash and had full availability under a $775-million revolving credit line. Thus, with sound liquidity and a manageable debt level, the company is expected to be able to meet its near-term debt obligations even if the economic situation worsens.
Also, the company’s capital-deployment activities seem impressive. In February 2022, its board of directors approved a hike in dividend, increasing the total to an annual rate of $1.30 per share. The dividend is scheduled to be paid in May 2022. Also, as of Dec 31, 2021, $38.2 million of repurchase capacity remained available under the share repurchase program. Such capital-deployment activities seem sustainable, given the company’s strong balance sheet position and consistent earnings strength.
However, Carlyle has been witnessing a persistent rise in expenses over the past few years. The company’s costs witnessed a CAGR of 49.8% in the last three years (ended 2021). We believe that such escalating costs might weigh on its expense base to some extent in the upcoming quarters and hinder bottom-line growth.
Also, Carlyle competes with a broad spectrum of regional and global financial institutions and markets for investment opportunities and investors. Competition is particularly stiff in the emerging markets where local firms tend to have more prominent relationships with the companies in which Carlyle targets to invest.
This apart, greater reliance on advisory firms or in-house investment management may reduce fund of funds’ appeal to large institutional investors. As Carlyle continues to target high net worth investors, it also faces competition from mutual funds and investment firms that have competing products.
Currently, Carlyle carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have gained 27.2% compared with 7.4% growth recorded by the industry.
Image Source: Zacks Investment Research
Finance Stocks to Consider
Some better-ranked stocks in the finance space are Bank of Hawaii (BOH - Free Report) , First Business Financial Services (FBIZ - Free Report) , and PCB Bancorp (PCB - Free Report) . At present, Bank of Hawaii, FBIZ and PCB carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past six months, shares of PCB have jumped 17.5%, whereas FBIZ and BOH stocks have rallied 16.4 and 3.1%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised marginally upward, while the same for PCB Bancorp and Bank of Hawaii has stayed constant.