Asset Manager BlackRock’s Earnings Beat Wall Street Estimates; Target Price $890

The world’s largest asset manager BlackRock reported better-than-expected earnings in the fourth quarter with 11% increase in full-year revenue reflecting strong organic growth, record performance fees and 17% growth in technology services revenue.

The New York-based multinational investment management corporation reported net income of $10.18 per share, beating the Wall Street estimate of $9.17.

“The EPS beat reflected a combination of better than expected revenues across most segments (led by perf fees), as well as several favourable below the line items. Adj op income came in +$92M vs our est. Long-term flows of +$116.2B were in line with our estimate with solid contributions from most active segments. The base fee rate declined 0.15 bps q/q, mostly due to lower sec lending and MM fee waivers,” said Daniel T. Fannon, equity analyst at Jefferies.

“This is the second quarter in a row of solid revenues, with a record annualized base fee growth of +13% in the period. The trends inflows remain broad-based and dominated by strength across the active segments as well as in iShares. The biggest positive on the quarter is the continued positive contribution from Active Equity and Active Fixed Income flows.”

However, upbeat earnings did not help BlackRock’s shares, which traded 3% lower at $756.04 on Thursday. The stock rose more than 40% in 2020.

BlackRock Stock Price Forecast

Six analysts who offered stock ratings for BlackRock in the last three months forecast the average price in 12 months at $791.33 with a high forecast of $890.00 and a low forecast of $602.00.

The average price target represents a 4.12% increase from the last price of $760.00. From those six analysts, five rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $890 with a high of $1,338 under a bull scenario and $413 under the worst-case scenario. The firm currently has an “Overweight” rating on the investment manager’s stock.

Several other analysts have also recently commented on the stock. ValuEngine lowered shares of BlackRock from a hold rating to a sell rating. BMO Capital Markets upped their price objective to $602 from $594 and gave the company a market perform rating. Deutsche Bank upped their price objective to $802 from $795 and gave the company a buy rating.

In addition, Wells Fargo & Company upped their price objective to $805 from $700 and gave the company an overweight rating. At last, Citigroup upped their price objective to $800 from $690 and gave the company a buy rating.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 14% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect the premium to widen as BLK takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

Upside and Downside Risks

Risks to Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Risks to Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

Other major banks will report their quarterly earnings on Friday.

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