Expanding Private Markets And Aladdin Will Drive Future Success

Key Takeaways

• Strategic expansion into private markets and alternative investments aims to drive organic growth and improve margins amid strong client demand.
  
• Leveraging technology and growth in ETF and international markets positions BlackRock to enhance efficiency, diversify revenue, and capture market share effectively.
  
• Geopolitical tensions, economic uncertainties, and inflationary pressures pose significant risks to BlackRock's revenue, margins, and client trust.

Catalysts

A privately owned investment manager.

• BlackRock's strategic expansion into private markets and alternative investments, including infrastructure and private credit, is expected to drive future organic revenue growth, as client demand remains strong for these higher margin and less market-sensitive asset classes. This will likely result in increased base fee revenue and improved net margins over time.
  
• The company is capitalizing on growth opportunities in international markets through partnerships and acquisitions, such as its ventures in India and Germany, which can lead to diversification of revenue streams and expand BlackRock's global AUM, ultimately bolstering earnings.
  
• BlackRock's commitment to leveraging technology, notably through Aladdin and its acquisition of Preqin, positions the firm to enhance operational efficiency and client engagement. This strategic focus on technology can lead to higher subscription and technology services revenue and improved operating margins.
  
• The firm's emphasis on ETFs, which saw significant net inflows, positions BlackRock to capture a leading share in the growing ETF market. The growth in higher-fee ETF categories can contribute to organic base fee growth and bolster overall earnings.
  
• The planned acquisition of HPS and its focus on private credit are expected to add accretive assets, enhancing BlackRock's scale and capabilities in alternative investments, which can improve operating leverage, expand margins, and drive long-term earnings growth.

BlackRock Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BlackRock's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.1% today to 32.7% in 3 years time.
• Analysts expect earnings to reach $9.1 billion (and earnings per share of $59.34) by about April 2028, up from $6.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $7.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, up from 21.8x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 4.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

BlackRock Future Earnings Per Share Growth

Risks

• BlackRock's performance fees have decreased due to lower performance revenue from private markets and liquid alternatives, potentially impacting its future earnings.
  
• Uncertainty and anxiety regarding market and economic futures are prevalent, which could lead to altered client behaviors and impact BlackRock's revenue streams.
  
• Geopolitical tensions and trade disputes could potentially destabilize markets, impacting BlackRock’s asset inflows and overall revenue growth.
  
• Increased demand for infrastructure investment poses a risk if not met effectively, possibly leading to revenue misses or unfulfilled client expectations.
  
• Rising inflationary pressures and a potentially unstable economy threaten to diminish investor trust and impact net margins negatively.

Valuation

• The analysts have a consensus price target of $1029.203 for BlackRock based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $27.8 billion, earnings will come to $9.1 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of $887.22, the analyst price target of $1029.2 is 13.8% 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.