Up 10% Since The Beginning Of 2023, What Should You Expect From BlackRock Stock?

BlackRock’s stock (NYSE: BLK) has gained roughly 11% since the beginning of 2023, as compared to the 27% rise in the S&P500 index over the same period. Further, at its current price of $789 per share, the stock is trading 8% below its fair value of $853 – 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 $790 now, vs. an increase of about 30% 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 15% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 surpassed the consensus estimates in the fourth quarter of 2023. It posted total revenues of $4.63 billion – up 7% y-o-y, mainly due to a 6% growth in the base fees (total investment advisory, administration fees & securities lending revenue). Further, the average assets under management (AuM) increased 11% y-o-y to $9.38 trillion in the quarter. On the cost front, the operating expenses as a % of revenues witnessed a favorable drop, leading to an operating margin of 34.2% vs, 32.9% in Q4 2022. Overall, the adjusted net income improved 9% y-o-y to $1.38 billion.

The top line marginally decreased to $17.86 billion in 2023. It was primarily because of lower distribution fees and base fees, offsetting the positive growth in technology services revenue. Further, the operating margin slightly decreased to 35.1% in the year. However, the negative impact was more than offset by a jump in non-operating income from -$95 million to $880 million. It resulted in an adjusted net income of $5.5 billion – up 6% y-o-y.

Moving forward, we expect the Q1 2024 results to be on similar lines. Overall, BlackRock revenues are estimated to touch $20 billion in FY2024. Additionally, BLK’s adjusted net income margin is likely to see some drop as compared to last year, resulting in an annual GAAP EPS of $39.00. This coupled with a P/E multiple of just below 22x will lead to a valuation of $853.

[1] Returns as of 1/30/2024
[2] Cumulative total returns since the end of 2016

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