Long-established in the Asset Management industry, KKR & Co Inc (KKR, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.47%, juxtaposed with a three-month change of 32.93%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of KKR & Co Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 7/10
- Growth rank: 4/10
- GF Value rank: 1/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned KKR & Co Inc the GF Score of 67 out of 100, which signals poor future outperformance potential.
Understanding KKR & Co Inc Business
KKR & Co Inc is one of the world's largest alternative asset managers, boasting a market capitalization of $140.7 billion. The company manages $601.3 billion in total assets, with $487.3 billion in fee-earning assets under management (AUM) as of June 2024. KKR operates through two core segments: asset management, which includes private markets such as private equity, credit, infrastructure, energy, and real estate, and public markets, primarily credit and hedge/investment fund platforms. Additionally, KKR has expanded into the insurance sector following its acquisition of Global Atlantic Financial Group, which deals in retirement/annuity and life insurance lines as well as reinsurance.
Financial Strength Breakdown
KKR & Co Inc's financial strength indicators present some concerning insights about the company's balance sheet health. KKR & Co Inc has an interest coverage ratio of 0.31, which positions it worse than 97.53% of 445 companies in the Asset Management industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.02, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years.
The company's debt-to-equity ratio is 2.1, which is worse than 95.29% of 977 companies in the Asset Management industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
Additionally, the company's debt-to-Ebitda ratio is 5.41, which is above Joel Tillinghast's warning level of 4 and is worse than 77.27% of 352 companies in the Asset Management industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where KKR & Co Inc seems to falter, as evidenced by the company's low Growth rank. Over the past five years, KKR & Co Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -3.2%, while the five-year growth rate is at -5.2%. These figures underscore potential challenges in the company's profitability.
Lastly, KKR & Co Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
In conclusion, KKR & Co Inc's financial strength, profitability, and growth metrics, as highlighted by the GF Score, suggest potential underperformance in the future. The company's high debt levels, low interest coverage, and declining growth rates present significant challenges. While KKR remains a major player in the asset management industry, these financial indicators raise concerns about its ability to sustain past performance levels. Investors should carefully consider these factors when evaluating KKR & Co Inc as a potential investment. For those seeking companies with stronger GF Scores, GuruFocus Premium members can explore more options using the GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
