FBR Capital Reiterates an 'Outperform' on KKR Financial (KFN); Warrants Premium Valuation

November 11, 2009 9:09 AM EST

FBR Capital reiterates an Outperform rating on KKR Financial (NYSE: KFN), raises price target from $6.25 to $7.

FBR analyst says, "We remain buyers of KFN shares at a discount to book value for several reasons. As long as corporate credit markets continue their upward bias, KFN book value should benefit. From a
"core" earnings perspective, KFN shares trade at 4.1x annualized 3Q09 operating EPS of $0.34, which is a true measure of cash flows generated from the investment portfolio. Based on the company's sufficiently liquid balance sheet at 3Q09 end, we believe that KFN is close to making a dividend payment, albeit a small one at this juncture. The ability to pay a larger dividend going forward is primarily based on KFN's remaining two CLOs returning to compliance.> To that end, as of September 30, 2009, CLO 2007-A was very close to being in compliance with covenants, which would increase the current cash flow available to shareholders going forward. We continue to believe that there is significant underlying embedded value in KFN shares, not only in terms of long-term book value upside, but also in terms of the ability, based on the company's irreproducible liability structure, to take advantage of opportunities in corporate credit to create a powerful and consistently growing earnings stream over time."

To see more analyst ratings on KFN Click Here.

KKR Financial Corp., a real estate investment trust and specialty finance company, invests in various asset classes in the United States.

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