JPMorgan analyst Ken Worthington on Tuesday upgraded private equity giant Blackstone Inc. to overweight from neutral as the company rolls out new products for wealthy individuals and grows its fee income despite a slowing economy.
“We see a retail franchise still intact and positioned for stronger growth over the intermediate term, a real estate franchise with such good performance from which we expect growth even if the asset class falls from favor, and an insurance operation that is adding layers of revenue/earnings growth via credit and real estate debt investments for multiple years,” Worthington said.
Blackstone has been under scrutiny as investors stepped up cash redemptions from its $69 billion Blackstone Real Estate Income Trust Fund, or B-Reit late last year.
But Worthington sees the private equity firm, “as a good investment over the next twelve months particularly if the U.S. economy reaches a soft landing” even though Blackstone may see more outflows from B-Reit in 2023.
“We see the potential for near-term challenges to B-Reit flows to be short lived as Blackstone institutional investors and retail gatekeepers are highly sophisticated and follow a longer term investment horizon in which allocations to alternatives and Blackstone are going higher,” Worthington said.
After studying the B-Reit and Blackstone credit fund product structures, the businesses appear to be sound, Worthington said.
Blackstone is also expected to launch new retail products to follow the success of the non-traded fund structures it used with R-Reit and other products.
Blackstone has been able to draw billions for B-Reit and other non-traded retail funds through its wealth-management distribution relationships. It’s also seeing steady interest from institutional investors.
“We continue to expect asset allocations increasing to private markets and alternatives, which ultimately drives free-related earnings growth which is where investors attribute value to Blackstone.
Blackstone is due to report fourth-quarter free-related earnings of 95 cents a share on Thursday, according to estimates compiled by FactSet.