Blackrock posts underwhelming profit, but there's plenty more
where that came from
Julian Close 10/28/2013
Blackrock Financial Management (
) is the world's largest asset manager, and a tremendously
powerful, respected name in financial circles, despite being a
far younger company than most of the big name Wall Street firms.
The company's cache springs in part from a $130 billion contract
it acquired in 2009; the customer was the Federal Reserve Bank of
New York, which hired Blackrock to price and liquidate distressed
financial assets after the 2008 sub-prime mortgage crisis. These
included not only mortgage backed securities, but several
subsidiaries of AIG as well.
Blackrock has had an impressive year, and BLK stock has risen 70%
over the past twelve months. Its record of strong growth, rising
dividends and high profit margins (currently 28%) contribute to
the stock's five STARS (strong buy) rating from S&P, and
while S&P has no cause to complain about Blackrock's
performance, the stock may have given them a brief scare
On October 16, while the world was riveted by the political
crisis and fretting over the possibility of the U.S. defaulting
on its debt and causing a global financial meltdown, Blackrock
reported third quarter earnings of $3.88 on an adjusted basis,
which was two cents below S&P's estimate and one cent below
the Capital IQ consensus estimate. The Street often reacts
harshly and a bit vindictively when companies miss their earnings
targets, and the news must initially have seemed worrying.
It was not long, however, before it became clear that The
Street was viewing the report positively. Not only was S&P's
estimate among the highest, but other ratings agencies, Thomson
Reuters in particular, had calculated the consensus estimate to
be $3.88, so the story that investors heard that morning (the few
who were paying attention, that is) was that Blackrock had hit
its earnings target. From The Street's perspective, a miss is
just a miss, but when there is a close call, it shifts the weight
of investor attention onto the remainder of the report, and
beyond the initial number, Blackrock's third quarter earnings
report was a strong one.
Assets under management grew 12% from the year-ago quarter.
Revenue rose by 7% over the same period. Continuing efforts at
cost control had led to the company's highest profit margin in
five years, and its iShares ETFs continued to grow more and more
popular. In light of Blackrock's $4.1 trillion under management
and the company's growth across all business units, it is no
wonder that investors took the earnings near-miss as an all-round
positive, and chose to buy rather than sell.
Given the rising interest in ETFs in general and Blackrock's
ETFs in particular, the company's peerless reputation, its
magnificent profit margin and a management team that has
demonstrated extreme competence, the chance of any significant,
near-term drop in the price of BLK shares appears remote.
Chart courtesy of
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