DigitalBridge Stock Drops Amid Fund-Raising

As the alternative-asset manager DigitalBridge encountered an 8% stock decrease on Tuesday, following a quarterly report that failed to impress investors regarding its fund-management business, sell-side supporters of the company remain committed to their Buy ratings.

Disappointing Fund-Raising Results

According to Raymond James analyst Ric Prentiss, fund-raising for DigitalBridge's private-equity funds in the December quarter fell short of expectations. Additionally, the company's 2024 fund-raising guidance was deemed lackluster, with Prentiss anticipating fluctuations in the future.

Analyst Outlook and Market Response

Prentiss lowered his target price for DigitalBridge stock to $23 from $24 while upholding his Strong Buy rating. Despite this adjustment, all seven analysts surveyed by FactSet continued to uphold their Buy ratings.

The stock's decline slowed on Wednesday morning, with shares maintaining stability around $18.50 for the Boca Raton-based firm.

Restructuring Efforts and Fee-Earning Assets

The recent quarter marked DigitalBridge's first set of results following a restructuring process aimed at removing the operations of two data centers from its financial statements. This strategic change was intended to enhance visibility on the company's managed funds and the lucrative fees generated from them. Despite ending December with $32.8 billion in fee-earning assets, falling short of initial projections of $33 billion to $36 billion led to Tuesday's stock dip.

DigitalBridge Projects Strong Growth in Fee Revenue and Earnings

DigitalBridge, a leading company in the asset management industry, has revised its expectations for the next few years. The company anticipates reaching $36 billion to $38 billion in fee-earning assets by the end of 2024, slightly lower than previous forecasts. However, the outlook remains positive with projected fee revenue of $335 million to $360 million for 2024, along with earnings of $150 million to $165 million from those fees. Looking ahead to 2025, earnings could rise to $195 million, potentially resulting in a stock-market capitalization of $3.1 billion based on a 16 times multiple.

Potential Boost from Portfolio Sales and Ownership Interests

Analysts highlight the possible gains from the sale of companies within DigitalBridge's portfolio. The estimated value of incentive payments and ownership stakes in these companies could add up to another $2.5 billion in market capitalization. It's a promising aspect that could contribute significantly to the company's overall growth trajectory.

Cash Flow Projections and Strategic Focus

Forecasts suggest that DigitalBridge is on track to generate approximately $90 million in distributable cash in 2024, equivalent to 48 cents per share. This figure is expected to increase to $100 million in 2025, translating to 55 cents per share. The company's strategic priorities include using these cash flows to reduce debt, repurchase preferred stock, pay dividends, or pursue acquisitions in the asset management space.

Realignment of Expectations and Future Prospects

With a revised outlook for DigitalBridge, analysts believe that the company is poised for expansion and a broader appeal within the financial stock market. The recalibrated projections offer a glimpse into the company's growth potential and strategic direction moving forward.