Acquisitions And Technology Advances Will Strengthen Firm's Future Market Position

Key Takeaways

• High-growth acquisitions and technology enhancements aim to boost revenue, margins, and earnings through increased client assets and demand for analytics.
  
• Focus on ETFs in emerging markets, combined with capital strategies, enhances market share and shareholder value, potentially correcting undervaluation.
  
• Heavy reliance on acquisitions and high spending may challenge BlackRock's profitability and operating margins amid legislative and interest rate uncertainties.

Catalysts

A publicly owned investment manager.

• BlackRock is integrating high-growth acquisitions such as GIP, HPS, and Preqin, which are expected to enhance revenue streams through increased client assets in private markets and alternatives. This expansion is likely to drive above-average revenue growth and earnings.
  
• The firm has seen a strong inflow of net assets, achieving its highest year-over-year organic base fee growth in three years, which should positively impact future revenue and operating income.
  
• BlackRock's focus on technology enhancements, particularly through its Aladdin platform and planned integration of Preqin, positions it to capitalize on increased demand for sophisticated risk management and portfolio analytics, potentially boosting net margins and earnings.
  
• The push into ETFs, particularly in high-growth and emerging markets (e.g., Europe with digital-first offerings), suggests potential significant increases in revenue and market share as these markets mature.
  
• Planned share buybacks and consistent capital deployment strategies, combined with potential for dividend increases, may enhance EPS growth and shareholder value, leading to perceived undervaluation being corrected by the market.

BlackRock Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BlackRock's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.2% today to 31.5% in 3 years time.
• Analysts expect earnings to reach $9.0 billion (and earnings per share of $57.61) by about January 2028, up from $6.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, which is the same as it is today today. This future PE is greater than the current PE for the US Capital Markets industry at 23.0x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

BlackRock Future Earnings Per Share Growth

Risks

• BlackRock's reliance on acquisitions, such as GIP, HPS, and Preqin, for expansion and growth could expose the company to integration risks and increased operational costs, which may impact its net margins and profitability.
  
• The potential changes in tax legislation and uncertainty in effective tax rates for 2025 might affect BlackRock's earnings, leading to a lower-than-expected increase in net income.
  
• Elevated spending on technology, employees, and general administrative expenses, driven by organic investments and acquisition integration, could challenge BlackRock's ability to maintain its operating margins.
  
• High-interest rates potentially leading to lower investor allocations to riskier assets like equities and private markets may dampen fee-based revenue growth, impacting overall revenue generation.
  
• Heavy exposure to highly regulated markets such as retirement savings poses risks if legislative changes inhibit the planned introduction of alternative investments in 401(k) plans, potentially restricting revenue expansion from this segment.

Valuation

• The analysts have a consensus price target of $1165.06 for BlackRock based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1275.0, and the most bearish reporting a price target of just $1045.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $28.5 billion, earnings will come to $9.0 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $1012.09, the analyst's price target of $1165.06 is 13.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.