Investing.com — Shares of Partners Group (SIX:PGHN) surged over 4% on Tuesday following an upgrade from UBS Global Research, which raised its rating on the stock to “buy.”
The analysts at UBS cited several key factors for the upgrade, including the firm’s strong growth outlook in assets under management and an optimistic performance fee outlook.
UBS analysts forecast that Partners Group will achieve a compound annual growth rate of 13% in AuM between 2024 and 2027, a figure they believe will outpace its European peers and align closely with the growth seen in U.S. firms.
This projected growth is attributed to the firm’s unique distribution model, which combines institutional partnerships with wealth management channels.
One such partnership is with BlackRock (NYSE:BLK), focusing on model portfolios offered to U.S. wealth management clients.
UBS expects this collaboration to contribute to consistent and predictable AuM growth for Partners Group in the coming years.
The analysts also raised their earnings per share projections for 2024, 2025, and 2026, with revisions of 2-3% higher than their previous estimates.
The upward adjustment was driven by stronger performance fees, particularly as the market outlook for U.S. capital markets improves and a healthy pipeline of asset exits from earlier years begins to pay out.
Despite the positive earnings outlook and cyclical recovery, UBS emphasized that Partners Group’s valuation remains in line with longer-term averages.
Still, with the firm’s resilient margins, strong positioning in private markets, and exposure to secular growth trends, analysts believe the stock is well-positioned for continued outperformance in the medium and long term.
The analysts also noted that Partners Group has a firm grip on its operational growth, targeting a 60% EBIT margin on new business while maintaining its platform build-out strategy.
While the pace of recovery in transaction activity and multiples in the private markets remains uncertain, UBS remains confident that Partners Group’s differentiated model will allow it to outperform its peers.
As of now, UBS analysts expect Partners Group’s performance fees to contribute between 20% and 30% of total revenues in 2024, with this share set to rise to above 30% from 2026 onward as exit markets normalize.
They also noted that while the firm’s operating leverage may not improve drastically in the next five years, Partners Group’s disciplined approach to growth and long-term vision should continue to support strong financial results.
Given these factors, UBS analysts have also raised the price target to CHF1,378 from CHF1,174 for the stock, affirming their confidence in Partners Group’s ability to continue generating value for investors despite potential headwinds in the broader market.