Apollo and Capital One tip the scales as biggest components of KBW's 'best ideas' list

By Steve Gelsi

KBW highlights nine financial stocks poised to outperform, plus a boost from BlackRock

Apollo Global Management Inc. and Capital One Financial Corp. stood out as the largest of nine financial companies that landed on KBW's best ideas list for 2024, according to a research note released Wednesday.

With a market capitalization of about $53 billion, private-equity firm and annuities manager Apollo Global Management Inc. (APO) offers multiple pathways for growth, with an expectation of a 20% total return for 2024, analysts said.

"[The] market continues to focus myopically on sum-of-the-parts valuation, anchoring valuation to traditional life insurance multiples, with limited recognition of its spread-focused strategy, use of third-party capital, greater growth potential with broader platform benefits, and overall better return-on-equity profile," KBW analysts said.

Credit-card giant Capital One Financial (COF), with a market cap of about $50 billion, may offer a total return of 23% in 2024 as it benefits from improved credit trends, KBW said. The company may also boost returns by resuming share buybacks.

"We believe COF is primed for a big run, as we expect credit trends to improve as the impacts of growth math subside," KBW said.

KBW reiterated outperform ratings on Capitol One and Apollo Global Management as part of its best ideas list. Other best ideas list components with outperform ratings include residential loan services company Mr. Cooper Group Inc. (COOP), retirement services and insurance specialist Corebridge Financial Inc. (CRBG) and financial technology company Fidelity National Information Services Inc. (FIS).

Large regional bank KeyCorp (KEY), trading platform provider Nasdaq Inc. (NDAQ), and regional banks Prosperity Bancshares Inc. (PB) and Webster Financial Corp. (WBS) were also included on the best ideas list and all have outperform ratings.

Of the group, Corebridge drew the highest estimate for total return in 2024, with a projected figure of 33%.

Corebridge, the former unit of AIG Inc. (AIG) specializing in annuities, life insurance and asset management offers "strong" earnings-per-share momentum from improved credit spreads as interest rates fall, as well as cost savings and return of capital to shareholders, KBW said.

KBW also reiterated an outperform rating on asset management giant BlackRock Inc. (BLK) and an underperform on investment manager Franklin Resources Inc. (BEN) as a "pair trade."

BlackRock stands out as better positioned for an ongoing investment trend toward fixed income than Franklin Resources, particularly as a potential acquirer to boost its growth.

"A surge in fixed income flows is coming and we expect passive products to win a greater share of inflows in this cycle," KBW said. "BLK is uniquely positioned to win."

BlackRock is also expected to be an "active" acquirer as it focuses on growing its technology and private market capabilities, KBW analysts said.

By contrast, the recent track record of Franklin Resources "has been spotty and we see risk of low-quality transactions as moderate," KBW said. After a 27% rise in recent weeks, Franklin Resources stock appears to have reached a full valuation.

Along with Franklin Resources, four other stocks drew underperform ratings by KBW: life-insurance and annuities provider Brighthouse Financial Inc. (BHF), insurance broker Brown & Brown Inc. (BRO), regional banking giant PNC Financial Services Group Inc. (PNC) and student-loan refinancing provider SoFi Technologies Inc. (SOFI).

Also read: Lower interest rates fuel prospects for American Express in stock upgrade, along with three lease-to-own companies

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-Steve Gelsi

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01-03-24 1439ET

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