BlackRock Is Trailing S&P500 By 13% YTD, Is There Room For Growth?

BlackRock’s stock (NYSE: BLK) has gained roughly 4% YTD as compared to the 17% rise in the S&P500 index over the same period. In sharp contrast, BlackRock’s peer State Street’s stock (NYSE: STT) is up 10% YTD. Overall, at its current price of $845 per share, BLK stock is trading 10% below its fair value of $938 – Trefis’ estimate for BlackRock’s valuation. 

Amid the current financial backdrop, BLK stock has witnessed gains of 15% from levels of $720 in early January 2021 to around $845 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in BLK stock has been far from consistent. 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 JPM, V, 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 second quarter of 2024, with earnings beating the consensus but revenues missing the mark. It posted total revenues of $4.81 billion – up 8% y-o-y, mainly driven by a 7% growth in the base fees (total investment advisory, administration fees & securities lending revenue), higher performance fees, and higher technology services revenue. Further, the average assets under management (AuM) increased 14% y-o-y to $10.46 trillion, thanks to consistent organic growth and positive market movements. On the cost side, the operating expenses as a % of revenues witnessed a favorable decrease, leading to an operating margin of 37.5% vs, 36.2%. Overall, the net income rose by 9% y-o-y to $1.5 billion.

The top line slightly decreased to $17.86 billion in FY 2023. It was due to a drop in distribution fees and base fees, more than offsetting the increase in technology services revenue. Further, total operating expenses as a % of revenues marginally increased in the year. However, it was more than offset by an improvement in the non-operating income from -$95 million to $880 million. Altogether, the adjusted net income grew 6% y-o-y to $5.5 billion.

Moving forward, we expect the same trend to continue in Q3 2024. Overall, BlackRock revenues are forecast to touch $20.04 billion in FY2024. Additionally, BLK’s adjusted net income margin is likely to see a slight drop in the year, resulting in an annual GAAP EPS of $40.18. This coupled with a P/E multiple of just above 23x will lead to a valuation of $938.

[1] Returns as of 7/24/2024
[2] Cumulative total returns since the end of 2016

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