KKR & Co Inc Valuation – September 2018 $KKR

Company Profile (excerpt from Reuters): KKR & Co. Inc., incorporated on June 25, 2007, 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. The Company conducts its business with offices across the world, providing it with a global platform for sourcing transactions, raising capital and carrying out capital markets activities. Through KKR’s Private Markets segment, KKR manages and sponsors a group of private equity funds and co-investment vehicles. The Company operates through four segments: Private Markets, Public Markets, Capital Markets and Principal Activities.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KKR – September 2018

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 $21,840,989,154 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 195.09% Pass
5. Moderate PEmg Ratio PEmg < 20 16.23 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.61 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 Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.61
MG Growth Estimate 0.54%
MG Value $15.38
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $23.30
MG Value based on 0% Growth $13.66
Market Implied Growth Rate 3.87%
Current Price $26.08
% of Intrinsic Value 169.62%

KKR & Co Inc Class A is suitable for the Enterprising Investor but not 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 no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.55 in 2014 to an estimated $1.61 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.87% 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 Inc Class A revealed the company was trading below its Graham Number of $27.48. The company pays a dividend of $0.67 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.23, which was below the industry average of 21.31, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

KKR & Co Inc Class A performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $27.48
PEmg 16.23
PB Ratio 0.61
Dividend Yield 2.57%
TTM Dividend $0.67
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Long-Term Debt & Capital Lease Obligation $19,972,383,000
Total Assets $48,572,664,000
Intangible Assets $94,899,000
Total Liabilities $25,247,621,000
Shares Outstanding (Diluted Average) 548,745,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.27
Dec2017 $1.95
Dec2016 $0.59
Dec2015 $1.01
Dec2014 $1.16
Dec2013 $2.30
Dec2012 $2.21
Dec2011 $0.01
Dec2010 $1.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.61
Dec2017 $1.32
Dec2016 $1.15
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

KKR & Co Ltd Valuation – March 2017 $KKR
KKR & Co L.P. Valuation – August 2016 $KKR
10 Best Dividend Paying Stocks for the Enterprising Investor – August 2016
Dividend Investors Should Research These 10 Stocks – July 2016
10 Most Undervalued Companies for the Enterprising Investor – June 2016

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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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