Apollo Global Management (APO) Funds Brazos Deal, Is The Stock Fully Priced?

Apollo Global Management (APO) has moved into focus after ONEOK outlined a $9b nonvoting minority equity investment from Apollo managed funds to help finance its $4.425b Brazos Midstream acquisition and reduce existing debt.

Over the past month Apollo Global Management has seen a 7.52% share price return and a 4.88% share price return over 90 days, yet the share price return year to date is down 7.89% while the 5 year total shareholder return of 140.68% points to long term compounding as fresh M&A activity and portfolio moves like the Kelvion sale and Brazos financing keep the stock in focus.

Spot similar deal driven opportunities by scanning our hand picked 19 high quality undiscovered gems, which, like Apollo Global Management, are active around complex transactions and capital recycling.

Bulls point to Apollo Global Management’s pipeline of complex deals and long term compounding, while bears focus on recent share price softness and legal noise. Which side does the current valuation evidence support as you weigh APO today?

Price to earnings check on Apollo Global Management

Apollo Global Management is trading on a P/E of 42.2x, which sits alongside a DCF fair value estimate of $169.30 versus the last close of $135.04. Together these signals frame how much optimism is already reflected in the stock and how far pricing could shift if expectations change.

The P/E ratio compares the share price to earnings per share. It is a quick way to see how much investors are paying for each dollar of Apollo Global Management’s earnings. For an asset manager that leans on complex credit, private equity and retirement services, this can capture the market’s view on the durability of fee income, carried interest and balance sheet earnings.

At 42.2x, Apollo Global Management trades well above the US Diversified Financial industry average P/E of 16.9x. That points to investors assigning a much richer price tag than they do for the broader peer group. The ratio is also higher than the estimated fair P/E of 27.1x, which is a level the market could move towards if sentiment or growth expectations cool or if earnings delivery falls short of what is currently implied.

To go deeper into how this fair P/E level is derived and what might pull the current multiple closer to it over time, review the Explore the SWS fair ratio for Apollo Global Management

Result: Price-to-earnings of 42.2x (OVERVALUED)

However, there are clear risks if Apollo Global Management struggles to grow revenue after the recent decline, or if legal issues and complex deal execution start to weigh on earnings.

Find out about the key risks to this Apollo Global Management narrative.

Another view on Apollo Global Management valuation

The P/E check presents Apollo Global Management as expensive, while the SWS DCF model suggests the opposite. On that view, APO at $135.04 trades about 20.2% below an estimated fair value of $169.30. Which signal should be treated as more important when weighing the stock today?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Apollo Global Management for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With Apollo Global Management pulling in both concern and optimism, now is the time to review the evidence yourself and decide what matters most. To weigh those competing signals in a single view, start with the 2 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Apollo Global Management?

Do not stop with Apollo Global Management when there are other potential opportunities to review. Use the screener to see what you might be missing.

• Spot potential value opportunities early by reviewing the 45 high quality undervalued stocks that pass strict quality and fundamentals checks.
• Prioritise resilience by assessing companies in the 75 resilient stocks with low risk scores that score well on stability and risk controls.
• Strengthen your watchlist with financially sound stocks from the list of solid balance sheet and fundamentals (52 results) that may better handle tougher conditions.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com