BIP Expansion And Global Wealth Will Create New Opportunities

Key Takeaways

• Blackstone's infrastructure and private wealth strategies drive strong revenue growth, supported by successful geographic expansion and fundraising efforts.
  
• Real estate recovery and credit business momentum are expected to boost earnings, driven by strategic sector positioning and innovation.
  
• Persistent inflation and yield volatility could raise interest rates, affecting Blackstone's capital costs and margins, while market dependence may impede real estate gains.

Catalysts

An alternative asset management firm specializing in private equity, real estate, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies.

• Blackstone's infrastructure strategy, BIP, demonstrated exceptional growth with a 34% increase in AUM over the past year. Its dedicated infrastructure strategy, which generated $1.2 billion in fee revenues in Q4, is expected to continue anchoring its financial results, positively impacting the company's future revenue through geographic expansion and new sector-specific strategies.
  
• The private wealth segment showed exceptional promise with significant fundraising successes. The $28 billion raised in 2024 through perpetual strategies presents a strong outlook for ongoing revenue growth. The firm aims to replicate its infrastructure business' success, enhancing revenues through an expanded product lineup and international distribution.
  
• Continued momentum in Blackstone's credit and insurance business is anticipated, with its private credit platform seeing $450 billion in assets. With strong investor interest and new corporate partnerships highlighting its capital-light model, this area is expected to offer solid revenue and earnings growth.
  
• Blackstone's commitment to innovation and developing new business lines such as infrastructure and private wealth, along with the successful historical track record of scaling differentiated strategies, positions the firm to capture new growth opportunities. This is expected to drive higher fee-related earnings and enhance net margins.
  
• The real estate market recovery is anticipated to benefit Blackstone's holdings, driven by improved transaction activity and borrowing markets. The firm's strategic position in leading sectors like rental housing and data centers supports a positive view on future earnings and potential realizations, contributing to distributable earnings growth.

Blackstone Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Blackstone compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Blackstone's revenue will grow by 20.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 21.9% today to 44.6% in 3 years time.
• The bullish analysts expect earnings to reach $9.9 billion (and earnings per share of $8.53) by about April 2028, up from $2.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 32.3x on those 2028 earnings, down from 34.6x today. This future PE is greater than the current PE for the US Capital Markets industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 1.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

Blackstone Future Earnings Per Share Growth

Risks

• Persistent inflation concerns and U.S. Treasury yield volatility could lead to increased interest rates, potentially affecting Blackstone's cost of capital and net margins.
  
• The slow recovery of the real estate market and dependence on improved market conditions could impede Blackstone's ability to realize significant gains from its real estate investments, impacting future revenues.
  
• Economic policies and regulatory environments, particularly changes in tariffs and trade policies, could disrupt Blackstone's global operations and revenue earned from international investments.
  
• The high competition in the capital markets could affect the availability and cost-effectiveness of funding sources for Blackstone's investment strategies, impacting its earnings and net margins.
  
• Focusing on large-scale deployments and acquisitions increases execution risk, which can lead to suboptimal investments that don't meet projected performance, negatively influencing both revenues and earnings.

Valuation

• The assumed bullish price target for Blackstone is $204.06, which represents one standard deviation above the consensus price target of $181.4. This valuation is based on what can be assumed as the expectations of Blackstone's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $233.0, and the most bearish reporting a price target of just $147.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $22.1 billion, earnings will come to $9.9 billion, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $125.04, the bullish analyst price target of $204.06 is 38.7% 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.