Navigating Growth, Expanding Horizons In Private Markets And Tech Innovations

Key Takeaways

• BlackRock's strategy emphasizes diversification and resilience in earnings by expanding into high-growth areas like private markets, technology, and model portfolios.
  
• Investment in technology and data analytics, alongside acquisitions aimed at boosting private markets and technology services, underpins future revenue and organic base fee growth.
  
• Challenges in competition, market volatility, regulatory changes, execution risks from acquisitions, and shifts in investor preferences could impact BlackRock's growth and earnings.

Catalysts

A publicly owned investment manager.

• BlackRock's expansion into higher secular growth areas such as private markets, technology, and model portfolios powered by ETFs and active management is expected to deliver greater diversification and resilience in revenue and earnings across market cycles, impacting both revenue diversification and net margins positively.
  
• Planned acquisitions of Global Infrastructure Partners and Preqin emphasize a strategic push into private markets and data analytics, which is likely to accelerate growth in technology services revenue and enhance organic base fee growth, directly boosting revenue growth.
  
• Strong second-quarter performance, with significant operating income growth and asset under management (AUM) reaching record levels, demonstrates BlackRock's ability to attract net new assets and generate organic base fee growth, signifying potential for continued earnings growth.
  
• Leadership in ETFs, especially in areas like fixed income, core equity, and even niche markets like bitcoin ETFs, positions BlackRock to capitalize on broad market trends and investor reallocations, potentially increasing its market share and revenue from fee-based products.
  
• BlackRock's focus on integrating technology and data analytics through platforms like Aladdin, alongside initiatives in private markets indexing, positions the company to offer differentiated products and services. This innovation is likely to attract new client segments and solidify client retention, translating into sustained AUM growth and fee income.

Assumptions

• Analysts are assuming BlackRock's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.4% today to 32.9% in 3 years time.
• Analysts expect earnings to reach $7.9 billion (and earnings per share of $52.14) by about September 2027, up from $6.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $6.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2027 earnings, down from 21.2x today. This future PE is lower than the current PE for the US Capital Markets industry at 20.6x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.61%, as per the Simply Wall St company report.

Risks

• Increasing competition and innovation within the private markets and asset management technology sectors could challenge BlackRock's position, potentially affecting their revenue growth and market share through their Aladdin, eFront, and planned Preqin acquisitions.
  
• Regulatory changes or increased scrutiny of the asset management industry or specific investment products (e.g., ETFs, private equity structures) could lead to higher compliance costs or restrict certain revenue-generating activities, impacting net margins.
  
• Market volatility or downturn could negatively impact asset under management (AUM) growth and organic base fee growth, affecting overall revenue and earnings performance.
  
• The success of the planned acquisitions of Global Infrastructure Partners and Preqin hinges on integration and regulatory approvals, posing execution risks that could impact projected growth and diversification benefits.
  
• A shift in investor preferences away from products where BlackRock has a competitive advantage (e.g., ETFs, private markets) towards new or emerging investment vehicles could undermine revenue and earnings expansion plans.

Valuation

• The analysts have a consensus price target of $932.38 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 $1036.0, and the most bearish reporting a price target of just $774.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $24.2 billion, earnings will come to $7.9 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 6.6%.
• Given the current share price of $866.92, the analyst's price target of $932.38 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.