BlackRock Stock Has Limited Upside Potential Due To Revenue Headwinds Across Asset Management Industry

by Trefis Team
+19.16%
Upside
419
Market
500
Trefis
BLK
BlackRock
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Per Trefis, BlackRock’s (NYSE: BLK) stock is worth $490, which is slightly higher than the current market price. Our price estimate is based on a P/E multiple of 18.2 and an earnings estimate of $26.92 for FY 2019. In Q1 2019, the company posted an EPS of $6.61 (outperforming the market EPS estimate of $6.13) thanks to strong growth in Assets under Management (AUM), reduced operating expenses and repurchase of shares.

We have summarized our full year expectations for BlackRock based on the company’s guidance and our own estimates, on our interactive dashboard How Did BlackRock Fare In Q1 2019, And What Can We Expect In 2019? You can modify any of our key drivers to gauge the impact changes would have on its valuation. In addition, you will find more Trefis data for Financial Services companies here.

Key trends reported by BlackRock in 2019, and their impact on full-year performance

  • In Q1 2019, BlackRock’s total revenue shrank $237 million mainly due to a 5% Y-O-Y decline in Investment Advisory Fees. For FY 2019, we expect total revenues to grow 2.8% on the back of strong AUM inflows, especially in BlackRock’s extremely popular iShares range of exchange-traded funds (ETFs). However, a decline in security valuation across asset classes from macro-economic uncertainty and continued dollar appreciation could potentially hurt the top line.
  • Technology Services revenue grew by 11% in Q1 due to surging interest in BlackRock’s proprietary Aladdin platform. Revenues for the rest of the year should receive an additional boost from the recent acquisition of eFront.
  • Notably, fierce competition in the asset management industry, and the secular trend of investors shifting their cash to low-cost investment options have resulted in a steady reduction in fund expense ratios over recent years. This trend is expected to continue over the foreseeable future, and will weigh on revenues.
  • Although Operating Expenses fell in Q1 (4% Y-O-Y) due to lower compensations fees, we expect a moderate increase in Compensation Fees and General & Administrative Expenses for full-year 2019 to push Total Operating Expenses up by roughly 4.
  •  Net Income reduced by 3% (Y-O-Y) in Q1 due to lower operating income and higher tax rate. This trend is likely to continue in 2019 and will lead to a marginal reduction in BlackRock’s Net Income compared to 2018.
  • For FY 2019, we expect BlackRock to achieve earnings of $26.92, which coupled with our forward P/E multiple of 18.2 works out to a price estimate of $490 for the asset management giant.

In conclusion, BlackRock looks positive for the ongoing year, and according to current Trefis estimates, the stock is slightly undervalued.

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