BlackRock (BLK) Rides on Asset Growth Despite High Costs

BlackRock’s BLK profitability is likely to be impacted by increasing expenses on account of rise in general and administration costs. However, its initiatives to restructure the actively managed equity business and expand globally through acquisitions are expected to boost the top line.

Moreover, its Zacks Consensus Estimate for current-year earnings has remained unchanged over the past 30 days. Consequently, the stock currently carries a Zacks Rank #3 (Hold).

Further, shares of BlackRock have gained 5% over the past six months, against the industry’s decline of 12.5%.

Looking at its fundamentals, the company’s assets under management (AUM) witnessed a five-year CAGR of 6.5% (2014-2018). Moreover, revenues (on a GAAP basis) witnessed a CAGR of 6.4% over the same time frame. Given the company’s efforts to strengthen iShares and ETF operations, its solid AUM balance and increased focus on active equity business, revenues are expected to increase further.

Moreover, BlackRock has expanded primarily via buyouts. In May, it acquired eFront. In 2018, it acquired Citibanamex’s Asset Management business in Mexico and Tennenbaum Capital. Apart from these, over the years, the company expanded presence by acquiring several firms globally. With a strong liquidity position, BlackRock remains well positioned to grow through acquisitions.

However, its expenses have increased at a CAGR of 7.2% over the last five years (ended 2018). As the company continues to undertake restructuring initiatives to modify the size and shape of workforce and improve operating efficiency, expenses are expected to remain elevated in the near term. Consequently, higher costs might hurt the bottom line.

Further, BlackRock is a geographically diversified company, which makes it highly dependent on overseas revenues. This factor remains a concern and might hamper financials.

Some better-ranked stocks from the finance space are Ameriprise Financial, Inc. AMP, Victory Capital Holdings, Inc. VCTR and Virtus Investment Partners, Inc. VRTS. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 60 days, the Zacks Consensus Estimate for Ameriprise Financial’s current-year earnings has been revised marginally upward. Its shares have gained 40% so far this year.

Over the past 60 days, Victory Capital witnessed an upward earnings estimate revision of 1.6% for 2019. Its shares have appreciated 58.9% so far this year.

Virtus Investment Partners has witnessed an upward earnings estimate revision of 2% for 2019 over the past 60 days. The company’s share price has improved 42.4% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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