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Morgan Stanley on Monday adjusted its stance on P10 Inc (NYSE:), downgrading the stock from overweight to equal weight and lowering its price target from $12 to $9. The decision reflects analysts' views on the company's growth and earnings potential amid a challenging financing environment.
P10 Inc is known for its focus on the private sector lower middle market and is expected to achieve an average internal growth rate of 11% over the next three years. However, the expected compound annual growth rate (CAGR) in earnings per share (EPS) is only 9%. Although the company's management plans to increase investment, current financing difficulties are likely to have a negative impact on profit margins.
Despite volatile market conditions, P10's Fully Realized Fee-Related Earnings (FRE) model is seen as a revenue stabilizer. Nevertheless, Morgan Stanley notes that the lack of cyclical revenue sources could limit P10's upside potential as capital markets recover.
Compared to peers Hamilton Lane (NASDAQ:) Incorporated and StepStone Group Inc., P10 is trading at a discount. This is due to slower revenue growth and a lower-than-expected margin reset, potentially delaying when P10's valuation matches that of its peers. Our revised price target to $9 reflects these concerns and a more cautious outlook on the company's financial performance.
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