Up 10% In The Last Six Months, Does BlackRock Stock Have More Room For Gains?

BlackRock’s stock (NYSE: BLK) has gained roughly 5% YTD as compared to the 18% rise in the S&P500 index over the same period. Further, at its current price of $743 per share, the stock is trading 3% below its fair value of $766 – Trefis’ estimate for BlackRock’s valuation. 

Amid the current financial backdrop, BLK stock has seen little change, moving slightly from levels of $720 in early January 2021 to around $745 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Overall, the performance of BLK stock with respect to the index has been lackluster. Returns for the stock were 27% in 2021, -23% in 2022, and 5% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – 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 V, JPM, 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 posted mixed results in the third quarter of 2023, with earnings beating the consensus but revenues slightly missing the mark. It reported total revenues of $4.52 billion – up 5% y-o-y, primarily driven by a 4% rise in the base fees (total investment advisory, administration fees & securities lending revenue) and a 20% jump in the technology services income. Further, the average assets under management (AuM) increased 11% y-o-y to $9.4 trillion in the quarter. On the cost front, the operating expenses as a % of revenues witnessed a marginal decrease. Overall, the adjusted net income improved 14% y-o-y to $1.6 billion.

The total revenues declined by 2% y-o-y to $13.2 billion in the first nine months of 2023. It was mainly due to a 2% drop in the base fees, followed by a 10% decline in the distribution fees. Further, total expenses as a % of revenues increased over the same period. That said, the negative impact was more than offset by a jump in non-operating income from -$320 million to $538 million. It led to an adjusted net income of $4.1 billion – up 5% y-o-y.

Moving forward, we expect the same trend to continue in Q4. Overall, BlackRock revenues are forecast to touch $17.94 billion in FY2023. Additionally, BLK’s adjusted net income margin is likely to remain around the same level as last year, resulting in an annual GAAP EPS of $35.14. This coupled with a P/E multiple of just below 22x will lead to a valuation of $766.

[1] Month-to-date and year-to-date as of 12/7/2023
[2] Cumulative total returns since the end of 2016

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