On Thursday, JPMorgan upgraded StepStone Group (NASDAQ:STEP) stock from Neutral to Overweight, while also increasing the price target to $49.00, up from the previous target of $40.00. The firm cited improved fundraising prospects and growth in Fee-Paying Assets Under Management (FPAUM) as key drivers for the upgrade.
The upgrade comes after a period of what JPMorgan describes as challenging fundraising and idiosyncratic issues that had previously hampered FPAUM growth throughout much of 2023. The firm now foresees a period of higher FPAUM and greater FPAUM growth in 2024, which contributed to the positive outlook on the company's shares.
According to the firm, StepStone's Commingled Fund business is expected to benefit from more funds entering the market and some larger funds currently in the market. This, combined with further success in StepStone's developing Wealth Management business, is anticipated to bolster the company's position. The firm highlights that innovation and an increased product offering in the market will likely enhance StepStone's prospects in 2024 and beyond.
The firm also sees potential for recovery in StepStone's Separately Managed Account (SMA) operation, which a better fundraising environment and signs of improvement in deal-making could drive. The analyst suggests that these factors could lead to organic growth improvements in SMA, especially if the capital markets deal calendar continues to improve and M&A activity strengthens.
JPMorgan has adjusted its forecast for StepStone's adjusted earnings per share (EPS) for fiscal year 2026, raising the estimate from $2.04 to $2.17. The firm's rationale for the price target increase includes a higher valuation multiple among its peers and better growth prospects across its funds and SMAs. The target multiple has been raised from 20.0 to 22.5, leading to an increased December 2025 price target of $49.00.
InvestingPro Insights
Following JPMorgan's upgrade of StepStone Group (NASDAQ:STEP), key metrics from InvestingPro offer additional insights into the company's financial health and market performance. StepStone's market capitalization stands at a solid $3.98 billion, reflecting its substantial presence in the investment management sector. Investors should note the company's Price/Earnings (P/E) ratio, which at 39.28, suggests a higher valuation compared to earnings, typically indicating market expectations of future growth. This aligns with the InvestingPro Tips that indicate analysts are expecting net income and sales growth this year. Additionally, the company's Price/Book ratio is 5.17, which is on the higher side, demonstrating that the market values the company's assets quite favorably.
With a remarkable revenue growth of 322.63% over the last twelve months as of Q3 2024, StepStone appears to be on a strong growth trajectory. However, it's important to consider the quarterly revenue growth figure, which shows a significant decline. This could be indicative of short-term challenges or fluctuations in the company's earnings cycle. To further understand StepStone's potential, investors can explore more InvestingPro Tips, as there are additional tips available that provide deeper analysis into the company's performance and outlook.
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