Morgan Stanley Initiates Coverage on StepStone With Overweight Rating and Target Price at $33

Morgan Stanley analyst Michael J. Cyprys started coverage on shares of StepStone Group with “Overweight” rating and target price of $33 and said the global private markets investment firm is an attractive play on structural growth in private markets, with sticky fee revenue, access to fast-growing end markets and an ability to expand margins.

“We see industry-leading organic growth supported by secular tailwinds, with the opportunity for margin expansion. StepStone is a private markets investment firm that provides customized investment solutions, advisory, and data services for its clients. We view StepStone’s core competency as an allocator that connects large pools of institutional capital to an extensive network of private markets funds,” Cyprys added.

StepStone’s shares closed 3.17% lower at $26.21 on Monday; however, the stock is up about 6% since the investment firm’s shares started trading on the Nasdaq Global Select Market on Sept. 16.

Five analysts forecast the average price in 12 months at $29.00 with a high forecast of $33.00 and a low forecast of $26.00. The average price target represents a 10.64% increase from the last price of $26.21. From those five, two analysts rated “Buy”, thee rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $55 under a bull scenario and $14 under the worst-case scenario.

Other equity analysts also recently updated their stock outlook. Goldman Sachs Group initiated coverage on StepStone Group in a research report on Monday. They set a “neutral” rating and a $26 price objective for the company.  JPMorgan Chase & Co. started coverage on StepStone Group. They issued a “neutral” rating and a $29 price target for the company.

UBS Group began coverage on StepStone Group. They issued a “buy” rating and a $30 price target on the stock. At last, Barclays began coverage on shares of StepStone Group. They set an “equal weight” rating for the company.

“Compelling structural growth story in private markets… We see 19% client asset CAGR driving 23% EPS CAGR in FY21-24 that’s not priced in,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Many avenues for growth to surprise to the upside and drive upward revisions to estimates, supported by STEP’s global footprint, broad-scale, deep industry relationships and customized solutions that can drive new products, new clients and increased wallet share among existing clients. High-quality earnings supported by a sticky customer base and skew to recurring management fees with limited mark to market risk, resulting in greater revenue consistency.”

Upside risks: 1) Successful fundraising of SMAs, larger successor commingled funds, and newer products/strategies. 2) Growth in new retail/HNW channel. 3) Monetization of tech capabilities – highlighted by Morgan Stanley.

Downside risks: 1) Deeper recession leads to weaker investment performance, delaying performance fee realization and slowing AUM growth. 2) Higher than expected costs. 3) Inability to influence minority-owned businesses. 4) Greater regulatory scrutiny of PE.