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Robust AUM, Acquisitions Aid BlackRock (BLK) Amid Cost Woes

BlackRock’s BLK robust assets under management (AUM) balance, efforts to restructure the equity business, and strategic acquisitions will keep supporting its top line. Given its earnings strength and solid liquidity position, the company is expected to sustain efficient capital deployments in the future and, hence, keep enhancing shareholder value.

The Zacks Consensus Estimate for BLK’s current-year earnings has been revised marginally upward over the past 30 days. This reflects that analysts are optimistic regarding its earnings growth potential.

However, persistently rising expenses (mainly due to higher administration costs) are expected to hurt the company’s bottom line. BlackRock’s high dependence on overseas revenues is worrisome. Thus, BLK currently carries a Zacks Rank #3 (Hold).

Over the past year, shares of the company have gained 5.6% compared with the industry’s growth of 3%.

 

Zacks Investment Research
Zacks Investment Research


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Looking at its fundamentals, BlackRock’s AUM witnessed a seven-year (2016-2022) compound annual growth rate (CAGR) of 8.9%. Over the same period, the company’s revenues (on a GAAP basis) saw a CAGR of 6.5%. While AUM and revenues witnessed a decline in 2022 and the first quarter of 2023 on a year-over-year basis due to the tough operating backdrop amid the macroeconomic concerns, the trend will likely reverse in the future.

Given the company’s efforts to strengthen the iShares and ETF operations, and increased focus on the active equity business, BLK's top line is expected to be positively impacted in the quarters ahead.

We project total revenues to increase 0.4%, 8.1% and 14.4% in 2023, 2024 and 2025, respectively. Our estimates for AUM reflect year-over-year increases of 9.7%, 7.7% and 14.6% in 2023, 2024 and 2025.

BlackRock has expanded largely via acquisitions. In June 2021, it acquired the Climate Change Scenario Model of Baringa Partners. In February, it completed the acquisition of investment management services provider, Aperio Group.

Apart from these, over the years, the company has acquired several firms across the globe, expanding its footprint and market share. Nonetheless, the acquisition of Barclays Global Investors in 2009 has been the biggest deal by far. With a strong liquidity position, the company is well-positioned to grow through buyouts.

However, the company’s total expenses increased, seeing a CAGR of 6.9%, over the last seven years (ended 2022) mainly due to a rise in general and administration costs. While expenses declined in the first quarter of 2023, the same is expected to be elevated in the near term, given the company’s restructuring initiatives to improve operating efficiency. Our estimates for total expenses suggest a CAGR of 7% by 2025.

BlackRock is a geographically diversified company with a presence in almost all the major markets of the world. Its dependence on overseas revenues has been gradually increasing over the past few years. Despite generating just about one-third of revenues from overseas markets, a number of risks stemming from regulatory and political environments, foreign exchange fluctuations and the performance of the regional economy can affect its top-line growth.

Stocks to Consider

A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. CASH and First Citizens BancShares FCNCA.

The Zacks Consensus Estimate for Pathward Financial’s current fiscal year’s earnings has been revised 1.8% upward over the past 60 days. The company’s shares have gained 18.4% in the past year. Currently, CASH carries a Zacks Rank #2 (Buy).

First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67.2% upward over the past 60 days. In the past year, FCNCA’s shares have rallied 96.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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BlackRock, Inc. (BLK) : Free Stock Analysis Report

First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report

Pathward Financial, Inc. (CASH) : Free Stock Analysis Report

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Zacks Investment Research