Is BlackRock Stock Undervalued?

+2.32%
Upside
834
Market
853
Trefis
BLK: BlackRock logo
BLK
BlackRock

BlackRock stock (NYSE: BLK) has lost 19% YTD as compared to the 10% drop in the S&P500 index. Further, it is currently trading around $732 per share and has a potential upside of 26% to its fair value of $920 – Trefis’ estimate for BlackRock’s valuationThe asset management behemoth recently released its fourth-quarter results, topping the earnings estimates but missing the revenue expectations. It posted total revenues of $5.1 billion – up 14% y-o-y. The improvement was due to a 17% increase in total investment advisory, administration fees, and securities lending revenue (base fees) coupled with a significant jump in distribution fees. The base fees benefited from a 30% rise in revenue from the equity investments category. Further, the company reported $212 billion in total net fund inflows for the quarter. On the flip side, the company’s operating margin reduced from 41.3% to 39.9% in Q4, somewhat diluting the positive effect of higher revenues. It translated into a net income of $1.6 billion – up 6% y-o-y.

The company witnessed strong growth in FY2021. It reported total revenues of $19.4 billion, which is 20% more than the 2020 level. The growth was primarily due to a 21% y-o-y growth in the base fees, driven by a 36% jump in the revenues from equity investments. The firm’s average Assets under Management (AuM) increased 24% y-o-y to $9.4 trillion, with net fund inflows of $539.7 billion in the year. Further, the operating expenses as a % of revenues saw a favorable decrease, leading to improvement in operating margin from 35.1% to 38.5%. This  resulted in a net income of $5.9 billion – up 20% y-o-y. 

Going forward, we expect the AuM to continue its growth trajectory, enabling BlackRock’s revenues to touch $21.2 billion in FY2022. Also, the operating margin is likely to remain around the current levels. It will lead to a net income of around $6.4 billion and an annual EPS of $42.31 in the year, which coupled with a P/E multiple of 22x will lead to the valuation of $920.

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Here you’ll find our previous coverage of BlackRock stock, where you can track our view over time.

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 Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 BLK Return -11% -20% 92%
 S&P 500 Return -6% -11% 89%
 Trefis MS Portfolio Return -5% -14% 239%

[1] Month-to-date and year-to-date as of 2/24/2022
[2] Cumulative total returns since the end of 2016

 

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