NEW YORK (TheStreet) - Private equity manager KKR (KKR) may see its share of negative headlines as one of its investments, Energy Future Holdings, the biggest buyout in the history of the private equity industry, hurdles towards bankruptcy. Energy Future's troubles aside, one stock analyst believes KKR is undervalued and that returns from the firm's flagship 2006 fund may translate to gains for the firm's shareholders.

Oppenheimer analyst Chris Kotowski wrote in a recent report that he believes, despite KKR's "black eye" of a buyout in Energy Future, the firm's other investments in its 2006 flagship fund have performed strongly, raising opportunity for public shareholders.

"There are a good many investments in this portfolio that have the ability to appreciate further. We don‟t want to put too fine a point on it, but it's pretty easy to see where you could get another 5% or 10% more appreciation from here," Kotowski wrote in a note dated March 6.

Kotowski calculates that if KKR's 2006 fund were liquidated at current prices, it would generate 89 cents in earnings for public shareholders, and notes that KKR's history for conservative investment raises the prospect of additional earnings.

"Some like First Data and Samson seem to be works in progress where markdowns have been taken, but KKR seems to be working the situation. Others, like Capsugel, Biomet and Go Daddy, seem like companies that are well positioned to grow," Kotowski said of yet-to-be-realized KKR buyout investments that may eventually provide earnings for public shareholders.

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