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Why Should You Drop BlackRock from Your Portfolio Now?

On Sep 28, 2015, we issued an updated research report on BlackRock Inc.BLK .

This asset management company enjoys a diversified revenue stream as well as a strong global presence. Also, BlackRock's diversified product and revenue mix enable it to easily meet the changing needs of clients. As a result, the company's revenues have grown at a CAGR of 18.7% over the past 6 years (2010-2014).

However, given the nature of its business, BlackRock depends excessively on Investment advisory, administration and securities lending fees (comprising about 88% of its total revenue as of Jun 30, 2015). These types of revenues are generally adversely influenced by market fluctuations and foreign exchange translations. Therefore, led by the current weakness and uncertainty in global economy, the company's top line could be hurt in the near term.

BlackRock's increased dependence on overseas revenues adds to its woes. Though this leads to diversification, we believe the present volatile global scenario will hamper revenue growth in the next couple of quarters.

Also, mounting operating expenses remain a major concern for BlackRock. The company witnessed a persistent rise in adjusted operating expenses at a CAGR of 4.6% over the last 4 years (as of the end of 2014). Increased regulatory compliance costs, G&A expense as well as higher marketing costs (related to the company's brand campaign) will likely keep expenses high in the mid-term too.

Further, BlackRock is a highly leveraged company, with a debt/equity ratio of 1.34. While this is up substantially from the industry average of 0.24, it also indicates an increased debt burden compared with the industry. The stock performance is not impressive as well, having declined more than 17% year to date.

Moreover, the recent estimate revisions remain unfavorable, indicating analysts' bearish stance on BlackRock. Over the last 60 days, the Zacks Consensus Estimate has declined 1.4% and 3.2% for 2015 and 2016, respectively.

BlackRock, currently, has a Zacks Rank #4 (Sell).

Stocks Worth a Look

Better-ranked investment managers include America First Multifamily Investors, L.P. ATAX , Monroe Capital Corporation MRCC and Silvercrest Asset Management Group Inc. SAMG . While America First Multifamily Investors sports a Zacks Rank #1 (Strong Buy), both Monroe Capital and Silvercrest Asset hold a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BLACKROCK INC (BLK): Free Stock Analysis Report

SILVERCREST AM (SAMG): Free Stock Analysis Report

AMERICA FST TAX (ATAX): Free Stock Analysis Report

MONROE CAPITAL (MRCC): Free Stock Analysis Report

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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.


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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