We must admit, we've had great fun with the abysmal post IPO trading of Blackstone's stock. It's been mostly downhill since its debut in late June when it was priced at $31, shot up to $38 and then subsequently fell with a thud to a low of $21.30. It's provided ample opportunities to let our artistically creative juices flow with a little help from Photoshop.(You can see more of our handiwork here.) But is it time to finally consider going long? Fortune Magazine's Adam Lashinsky thinks it just might be, especially if you have a long term horizon:
....Blackstone earns its keep mostly by buying companies, fixing them up, and then reselling them. Think of the buyout barons as the rehab artists of the corporate finance world. The point is that all that spackling and wallpapering doesn't happen quickly.
What's more, when markets are turbulent it's tougher to sell, meaning paydays take longer. Blackstone itself said recently that it expects to hold its private equity investments for an average of 3 1/2 years, up from as little as two years in the buy-sell frenzy of 2005--06. That means there is little but sentiment to move Blackstone's stock on a day-to-day basis, and investors looking for a short-term killing are playing a game different from that of Blackstone itself.
Says Roger Freeman, an analyst with Lehman Brothers: "You need to think about this with a five- to six-year time horizon."
On that basis, there's a lot to like. Blackstone manages assets worth a staggering $98.5 billion, including its main private equity and real estate funds as well as various hedge funds. It also has a thriving M&A advisory group and a unit that helps troubled companies restructure themselves in or out of bankruptcy proceedings.
Its most lucrative revenue stream, though, is associated with the fees it charges investors in its funds. These so-called management fees are the easy money of Wall Street: Blackstone gets the dough whether it invests wisely or not. As Michael Puglisi, Blackstone's chief financial officer, pointed out in a mid-August conference call with investors, 37% of the company's revenues come in the form of fees. It's the least volatile portion of a decidedly risky business.
Blackstone isn't going to stop doing deals simply because banks have tightened lending requirements. The company has about $6.5 billion left to invest in its record-breaking $21.7 billion private equity fund, and it will begin raising another fund shortly. Its $10 billion real estate fund is only 40% committed. Right there that's more than $12 billion of ammunition to do more deals.
Thanks in part to its newfound best friend, the government of China, Blackstone plans to make a lot more investments in Asia, including India. It has said it sees no slowdown in dealmaking there....
Why Blackstone is a buy - Fortune
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