New York City’s KKR & Co. (KKR - Get Rating) is a multinational investment firm that specializes in alternative asset management, capital markets, and insurance. KKR manages hedge funds and sponsors investment funds that invest in private equity, credit, and real estate.

The company’s shares are down 24.4% in price year-to-date and 6.3% over the past three months to close yesterday’s trading session at $56.35. In addition, the stock is currently trading 32.8% below its 52-week high of $83.90, which it hit on Nov.4, 2021.

Last month the stock was downgraded by TheStreet from a “b” rating to a “c+” rating. Also, equity researchers at Goldman Sachs downgraded KKR from a “buy” rating to a “neutral”

rating.

Here is what could shape KKR’s performance in the near term:

Debt Financing

Last month, KKR priced an offering of $750 million of 4.8% senior notes due 2032, issued by KKR Group Finance Co. XII LLC, its indirect subsidiary. The notes will be guaranteed by KKR & Co. Inc. and KKR Group Partnership L.P. KKR expects to use the proceeds from the issue for general company purposes. The notes will be offered and sold to qualified institutional buyers in the United States under Rule 144A and to qualified institutional buyers outside the United States in accordance with Regulation S.

Inadequate Financials

KKR’s total revenues decreased 78% year-over-year to $1 billion for the first quarter ended March 31, 2022. Its investment income declined 42.9% from the prior-year quarter to $1.65 billion. The company reported a $73.77 million net loss compared to $1.64 billion in net income the prior-year quarter.

Poor Profitability

KKR’s 0.08% trailing-12-month asset turnover ratio is 60.7% lower than the 0.21% industry average. Its 14.6% trailing-12-month net income margin is 50.4% lower than the 29.3% industry average. Also, its trailing-12-month ROA and CAPEX/Sales multiple are negative 12.2% and 73.5%, respectively.

POWR Ratings Reflect Bleak Outlook

KKR has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KKR has a D for Stability and Quality. The 1.48 stock beta is in sync with the Stability grade. In addition, the company’s poor profitability is consistent with the Quality grade.

Among the 35 stocks in the F-rated Private Equity industry, KKR is ranked last.

Beyond what I have stated above, one can view KKR ratings for Growth, Value, Momentum, and Sentiment here.

Bottom Line

KKR’s deteriorating fundamental performance could raise investors’ concerns over its prospects. In addition, analysts expect its EPS to decline 9.5% in the current quarter (ending June 30, 2022) and 1% next quarter (ending Sept. 30,  2022). So, we think the stock is best avoided now.

How Does KKR & Co. Inc. (KKR) Stack Up Against its Peers?

While KKR has an overall D rating, one might want to consider its industry peers, TCG BDC Inc. (CGBD - Get Rating) and Oaktree Strategic Income Corporation (OCSI - Get Rating), which have an overall B (Buy) rating.

KKR shares were unchanged in premarket trading Friday. Year-to-date, KKR has declined -23.94%, versus a -11.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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