Trailing S&P500 BY 11% YTD, Where Is BlackRock Headed?

+15.74%
Upside
790
Market
914
Trefis
BLK: BlackRock logo
BLK
BlackRock

BlackRock’s stock (NYSE: BLK) has given negligible returns YTD as compared to the 11% rise in the S&P500 index over the same period. Further, at its current price of $816 per share, the stock is trading 11% below its fair value of $914 – Trefis’ estimate for BlackRock’s valuation

Amid the current financial backdrop, BLK stock has witnessed gains of 15% from levels of $720 in early January 2021 to around $815 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in BLK stock has been far from consistent. Returns for the stock were 27% in 2021, -23% in 2022, and 15% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BLK underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BLK face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company outperformed the consensus estimates in the first quarter of 2024. It posted total revenues of $4.73 billion – up 11% y-o-y, mainly due to an 8% growth in the base fees (total investment advisory, administration fees & securities lending revenue). Further, investment advisory performance fees almost quadrupled to $204 million followed by growth in both the technology services revenue and distribution fees. In addition, the average assets under management (AuM) increased 14% y-o-y to $10.18 trillion in the quarter. On the cost front, the operating expenses as a % of revenues witnessed a favorable drop, leading to an operating margin of 35.8% vs, 33.9% in Q1 2023. Overall, the net income improved 36% y-o-y to $1.57 billion.

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The top line marginally decreased to $17.86 billion in FY 2023. It was mainly due to a drop in distribution and base fees, more than offsetting the growth in technology services revenue. Further, operating expenses as a % of revenues increased in the year. That said, the negative impact was more than offset by higher non-operating income. Altogether, it led to an adjusted net income of $5.5 billion – up 6% y-o-y.

Moving forward, we expect the same trend to continue in Q2 2024. Overall, BlackRock revenues are forecast to touch $20.3 billion in FY2024. Additionally, BLK’s adjusted net income is likely to be around $5.9 billion, resulting in an annual GAAP EPS of $40.05. This coupled with a P/E multiple of just below 23x will lead to a valuation of $914.

 Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 BLK Return 8% 0% 114%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 653%

[1] Returns as of 5/16/2024
[2] Cumulative total returns since the end of 2016

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