KKR & Co L.P. Valuation – August 2016 $KKR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how KKR & Co L.P. (KKR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KKR & CO. L.P. (KKR) is a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit and hedge funds. The Company’s business offers a range of investment management services to its fund investors, and provides capital markets services to its firm, its portfolio companies and third parties. It operates through four segments. Through its Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. The Company operates and reports its combined credit and hedge funds businesses through the Public Markets segment. Its Capital Markets segment consists primarily of the Company’s global capital markets business. Through Principal Activities segment, the Company manages its firm’s assets and deploys capital.

KKR Chart

KKR data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KKR – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,797,738,264 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 6466566.67% Pass
5. Moderate PEmg Ratio PEmg < 20 16.84 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.30 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

KKR value chart August 2016

EPSmg $0.88
MG Growth Estimate -2.61%
MG Value $2.89
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $12.74
MG Value based on 0% Growth $7.47
Market Implied Growth Rate 4.17%
Current Price $14.80
% of Intrinsic Value 511.97%

KKR & Co. L.P. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.06 in 2012 to an estimated $0.88 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into KKR & Co. L.P. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.09 per share, for a yield of 7.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.84, which was below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

KKR & Co. L.P. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

KKR charts August 2016

Graham Number $0.00
PEmg 16.84
PB Ratio 1.30
Dividend Yield 7.36%
TTM Dividend $1.09
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $17,894,036,000
Total Assets $37,506,871,000
Intangible Assets $0
Total Liabilities $32,022,715,000
Shares Outstanding (Diluted Average) 481,810,000

Earnings Per Share History

Next Fiscal Year Estimate -$0.23
Dec2015 $1.01
Dec2014 $1.16
Dec2013 $2.30
Dec2012 $2.21
Dec2011 $0.01
Dec2010 $1.62

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.88
Dec2015 $1.40
Dec2014 $1.55
Dec2013 $1.57
Dec2012 $1.06
Dec2011 $0.44
Dec2010 $0.54

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – February 2016
7 Best Stocks For Value Investors This Week – 10/24/15
KKR & Co. LP Valuation – October 2015 Update $KKR
5 Undervalued Companies for Value Investors with a High Beta – October 2015
The Best Stocks of the Financial Services Industry – September 2015

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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