BofA upgrades Apollo Global stock after a dramatic 20% decline this month: Should you consider buying?

On August 5, Bank of America upgraded Apollo Global Management to “Buy” from “Neutral” following a significant 20% drop in the company’s stock since the start of the month.

BofA analysts attributed this drop to weaker-than-expected Q2 results alongside broader market pressures, including weak economic data and a lower interest rate outlook.

Apollo Global Q2 earnings snapshot

The Q2 financial results for Apollo Global Management fell short of Wall Street expectations, with a reported Non-GAAP EPS of $1.64, missing estimates by $0.11.

This downturn was caused majorly by a decline in profits from the Athene insurance unit, despite record fee-related earnings and robust momentum in the asset management unit.

The total revenue for this quarter was reported at $6.02 billion, marking a significant year-over-year decrease of 56.1%.

Despite the downturn in Q2 earnings, Apollo Global’s foundational business remains robust. Total assets under management as of June 30, 2024, were $696 billion, up from $671 billion at the end of the first quarter, driven largely by an influx of $39 billion during the period.

This growth in Q2 includes strong inflows of $144 billion seen over the past twelve months at the end of June 30. Fee-related earnings saw a healthy increase to $516 million from $462 million in Q1, bolstered by higher management fees.

The Athene challenge

A significant drag on Apollo’s recent performance has been its Athene annuities business, where profits slid 11% year-over-year to $710 million.

This decline was primarily due to lower income from alternative investments.

Despite this, Athene continues to attract substantial capital, securing $6 billion for the second phase of a strategy that complements its primary operations.

The segment remains vital, albeit facing challenges, especially with a decreased net spread in Q2, reflecting a dynamic and challenging landscape.

Attractive price-earnings growth ratio

Looking beyond the immediate financials, Apollo Global is actively enhancing its asset management business and expanding its private wealth channel.

Analysts have highlighted Apollo’s attractive price-earnings growth (PEG) ratio of under 1, which positions it favorably within the asset management sector. The anticipation of being added to the S&P 500 serves as a potential catalyst that could further bolster the stock’s appeal to investors.

The stock’s recent decline has also made its valuation attractive, with a forward PE ratio of 13.4 reflecting a discounted valuation relative to its long-term earnings growth, which is expected to be in the 15-20% range.

Apollo’s upcoming investor day, scheduled for October 1, can be particularly significant as it could reveal further strategic plans and potentially catalyze the stock’s recovery.

As we’ve navigated through Apollo Global’s recent financial upheavals, it’s clear that while the immediate past has been challenging, the underlying business and strategic initiatives hold promise for recovery and growth.

Now, with a deeper understanding of the fundamentals, let’s pivot to what the charts have to say about the stock’s price trajectory.

Is the long-term uptrend coming to an end?

Apollo has been one of the best-performing financial sector stocks since 2016, having yielded a tenfold return (including dividends) to its investors during that period.

APO chart by TradingView
The stock had more than doubled from its October 2023 lows by the end of July this year, but this recent decline might have ended this uptrend at least in the medium term.

The 28-day RSI has turned sharply lower and all medium-term trend indicators have turned negative. Considering that, investors who are looking at this decline as a buying opportunity must wait before initiating any fresh long positions.

The first signs of stability will emerge only if the stock starts trading above its 100-day moving average and the MACD (12,26,9) indicator turns green. Unless that happens, the chances of it falling lower will remain.

Short-term traders having a bearish outlook should try to initiate a short position closer to $105 with a trailing stop-loss above the stock’s 100-day moving average, which is currently at $114.75. If the downtrend persists, the stock can fall to its medium-term swing low near $78 where one can book profits.

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