BlackRock Shares Surge on Better-Than-Expected Q3 Earnings; Target Price $665

BlackRock Inc, the world’s largest investment management firm, reported a better-than-expected profit in the third quarter as the recovery in financial markets boosted its asset value to $7.81 trillion, sending its shares up about 4% on Tuesday.

The global investment manager said its net income rose 27% to $1.42 billion, or $9.22 per share, in the third quarter, from $1.12 billion, or $7.15 per share, a year earlier. Analysts had expected earnings of $7.80 per share, according to IBES data from Refinitiv, Reuters reported.

“BlackRock’s strong 3Q20 results were underscored by an impressive performance fee beat and resilient organic growth across fixed income, active equities, and alternatives. We have accordingly increased our estimates to reflect slightly higher AUM levels and increased performance fees. Momentum across the business appears strong with positive growth coming from all regions and asset classes,” said Daniel T. Fannon, equity analyst at Jefferies.

“We are increasing our 4Q20 EPS to $8.71from $8.27 and, thus, our 2020 EPS to $32.35 from $30.37. This is primarily a result of a stronger revenue (increasing 2020 from $13,656M to $14,197M) as EOP AUM came in slightly higher than expected, and we also modestly raised our performance fee outlook for 4Q20,” Fannon added.

The New York-based company reported a net inflow of $129 billion in the third quarter, up from $100 billion in the prior quarter. More than half of BlackRock’s long-term inflows were driven by clients in Europe and Asia.

Following this release, BlackRock’s shares closed 3.91% higher at $638.96 on Tuesday; the stock is up about 30% so far this year.

Executive comments

“BlackRock generated $129 billion of total net inflows in the third quarter, representing 9% annualized organic base fee growth. Our diverse platform saw inflows across all asset classes, investment styles and regions. Notably, more than 50% of long-term flows were driven by clients in Europe and Asia,” said Laurence D. Fink, Chairman and CEO at BlackRock.

“Our results are a validation of our globally integrated asset management and technology business model, which allows us to consistently invest and evolve ahead of client needs. Each of our strategic investment areas, including iShares ETFs, alternatives and technology, continue to grow, while strong investment performance has driven positive active flows over the last year.”

BlackRock stock forecast

Ten analysts forecast the average price in 12 months at $664.89 with a high forecast of $707.00 and a low forecast of $620.00. The average price target represents a 4.06% increase from the last price of $638.96. From those ten equity analysts, nine rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $750 with a high of $1,140 under a bull scenario and $339 under the worst-case scenario. KBW raised their target price on BlackRock to $654 from $635; Jefferies upped their stock price forecast to $727 from $663; Evercore ISI raised their target price to $705 from $675.

Other equity analysts also recently updated their stock outlook. Credit Suisse increased their price objective to $702 from $682; JP Morgan raised the target price to $707 from $662; UBS upped their stock price forecast to $680 from $645; Citigroup raised their price objective to $690 from $685; BofA Global Research increased their stock price forecast to $700 from $675; Deutsche Bank raised the price objective to $661 from $654; Wells Fargo raised the target price to $655 from $645.

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 10% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Michael Cyprys, 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 a share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” Cyprys added.

Upside and Downside Risks

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.

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.

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