After The Covid-19 War, BlackRock Will Be Back Up From Its -20% Fall

by Trefis Team
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Comparing the trend in BlackRock’s (NYSE: BLK) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially recover back to around $530 levels once fears surrounding the coronavirus outbreak are put to rest. This implies a upside of roughly 30% for the stock from the current price level of $410. Our conclusion is based on our detailed comparison of BlackRock’s performance against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did BlackRock Stock Fare Compared With S&P 500?

The World Health organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April 1st, BLK stock has lost 22% of its value (vs. about a 26% decline in the S&P 500). A bulk of the decline came after March 8th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

BlackRock’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

BlackRock’s stock could suffer sizable losses due to a drop in asset valuations driven by net market losses. The asset management giant drives a significant chunk of its revenues from Investment advisory, administration fees, and securities lending revenue, which are charged as a percentage of Assets under Management (AuM).

We believe BlackRock’s Q1 and Q2 results will confirm this reality with a drop in both advisory fees and Assets under Management (AuM). If signs of coronavirus containment aren’t clear by the April Q1 earnings timeframe, it is likely BlackRock’s stock, along with the broader market, is going to see continued drop when results confirm palpable reality.

But BlackRock Stock Witnessed Something Similar During The 2008 Downturn

We see BLK stock declined from levels of around $128 in October 2007 (the pre-crisis peak) to roughly $72 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 44% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, BLK recovered strongly post the 2008 crisis to about $176 in early 2010 – rising by 145% between March 2009 and January 2010. This recovery was not completely organic, as BlackRock’s acquisition of iShares in 2009 gave a big boost to its stock. In comparison, the S&P bounced back by about 48% over the same period.

Will BlackRock’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that BLK stock has fallen by 22% this time around compared to the 44% decline during the 2008 recession, it could recover by roughly 30% to levels of $530 once economic conditions begin to show signs of improving. This marks a more than full recovery to the $523 level BLK stock was at before the coronavirus outbreak gained global momentum. The potential upside could be attributed to BlackRock’s low debt levels and strong balance sheet.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture, and complements our analyses of the coronavirus outbreak’s impact on a diverse set of BlackRock’s multinational peers including Goldman Sachs and Morgan Stanley. The complete set of coronavirus impact and timing analyses is available here.

 

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