BlackRock Stock Is Undervalued

BlackRock’s stock (NYSE: BLK) has lost 7% YTD as compared to the 7% rise in the S&P500 index over the same period. Further, at its current price of $656 per share, the stock is trading 13% below its fair value of $750 – Trefis’ estimate for BlackRock’s valuation. The company surpassed the consensus estimates in the fourth quarter of 2022, despite a 15% decrease in total revenues to $4.3 billion. The top line primarily suffered due to a drop in market valuations and the negative impact of foreign exchange movement, hurting the Assets under Management (AuM). Markedly, AuM reduced by 14% y-o-y to $8.4 trillion. Further, the operating expenses as a % of revenues witnessed an unfavorable increase in the quarter. Overall, it led to an adjusted net income of $1.26 billion, down 23% y-o-y.

The total revenues fell by 8% y-o-y to $17.9 billion in FY2022. Notably, the company derives a majority of its revenues as a % of AuM, which suffered in the year due to tough macroeconomic conditions. That said, the technology service segment posted a 6% y-o-y growth. All in all, the adjusted net income decreased 12% y-o-y to $5.2 billion.

The firm has outperformed consensus in the last two quarters. Further, the consensus estimates for Q1 2023 revenues and earnings are $4.2 billion and $7.77 respectively. Altogether, BlackRock revenues are estimated to touch $18.37 billion in FY2023. Additionally, BLK’s adjusted net income is likely to see a slight drop in the year, resulting in an adjusted net income of $5 billion and an annual GAAP EPS of $33.50. This coupled with a P/E multiple of just above 22x will lead to a valuation of $750.

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