BlackRock Stock Lost 30% YTD, What To Expect?

BlackRock’s stock (NYSE: BLK) has so far underperformed the S&P500 in 2022 – down 31% YTD vs. a 13% decline in the S&P500. The drop was because of the high inflation figures, rising interest rates, and geopolitical tensions.

At its current price of $634 per share, the stock is trading 22% below its fair value of $817 – Trefis’ estimate for BlackRock’s valuation. The world’s largest asset manager posted mixed results in the first quarter, with earnings beating the consensus but revenues missing the mark. It reported total revenues of $4.7 billion – up 7% y-o-y. The improvement was primarily due to a 7% increase in base fees, coupled with a 12% growth in distribution fees, and an 11% rise in technology services. Further, the company reported $86 billion in total net inflows for the quarter. Overall, the adjusted net income increased 20% y-o-y to $1.4 billion. It was partly due to growth in the top line and partly because of a drop in total expenses as a % of revenues from 65% to 62%.

The company’s top line grew 20% y-o-y to $19.4 billion in 2021. The growth was mainly driven by the equity investments category, which witnessed a 36% y-o-y jump in the segment’s base fees. Further, BLK posted strong growth in the client assets, thanks to net fund inflows of $539.7 billion. All in all, the adjusted net income grew 20% y-o-y to $5.9 billion. It was due to revenue growth and lower expenses as a % of revenues, partially offset by a higher effective tax rate.

The treasury yields have suffered due to the zero rate policy by Federal Reserve. It was one of the key factors driving fund inflows in equity investments. However, with an improvement in the interest rates, some of the investor funds are likely to be diverted toward the fixed income category, causing a drop in the equity markets. Notably, the Fed increased the interest rate by half a percentage point on Wednesday, after a quarter percentage point hike in March. Further, multiple rate hikes are expected in the coming months. This will likely impact the growth rate of total AuM in the equity segment negatively. On the flip side, the technology services stream is anticipated to maintain its growth momentum over the subsequent quarters. Overall, BlackRock revenues are expected to remain around $20.1 billion in FY2022. Additionally, BLK’s adjusted net income margin is likely to see a slight drop in the year, leading to an adjusted net income of $5.9 billion and an annual EPS of $38.79. This coupled with a P/E multiple of just above 21x will lead to the valuation of $817.

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

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[1] Month-to-date and year-to-date as of 5/6/2022
[2] Cumulative total returns since the end of 2016

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