Cutting-Edge Strategies Propel Growth In Digital Infra, AI, And Private Wealth Markets

Key Takeaways

• Strategic investments in digital infrastructure and renewable energy are expected to enhance future revenue growth as these sectors expand.
  
• Advances in AI and data centers, along with private credit expansion, position Blackstone for significant future revenue and margin growth.
  
• Blackstone's strategic investments in digital infrastructure, AI, and private credit expose it to concentrated sector risks, economic instability, interest rate volatility, and increasing competition.

Catalysts

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

• Blackstone is experiencing robust investment activity, deploying significant capital across digital infrastructure, renewable energy, and power solutions. This strategic investment is expected to enhance future revenue growth as these sectors expand.
  
• The recovery in commercial real estate, with increasing asset values and improving investor sentiment, is expected to boost Blackstone's revenue and earnings in this sector, particularly as liquidity improves and new construction supply declines.
  
• Blackstone's scale in private credit, especially within insurance and investment-grade credit markets, positions it to capture significant growth opportunities. This expansion is likely to positively impact revenue and net margins, given the premium these strategies can command over traditional credit markets.
  
• Blackstone's advances in the AI and data center sectors, highlighted by significant portfolio investments, are projected to be strong revenue drivers due to the growing demand for compute power and infrastructure to support AI advancements.
  
• The increasing momentum in private wealth and the potential for launching new perpetual private wealth vehicles in credit and infrastructure is expected to drive substantial future revenue growth and earnings, supported by strong investor demand in these high-growth areas.

Blackstone Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Blackstone's revenue will grow by 18.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.0% today to 45.8% in 3 years time.
• Analysts expect earnings to reach $8.5 billion (and earnings per share of $6.73) by about October 2027, up from $2.2 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 29.3x on those 2027 earnings, down from 61.1x today. This future PE is greater than the current PE for the US Capital Markets industry at 22.5x.
• 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 dollars, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Blackstone Future Earnings Per Share Growth

Risks

• Blackstone's substantial investments in digital infrastructure and AI, while strategically positioning the firm for growth, also concentrate risks in these sectors. Any downturn or overvaluation in these areas could negatively impact future earnings and asset values.
  
• The recovery in commercial real estate is contingent on favorable economic conditions and declining borrowing costs. Unexpected increases in interest rates or economic instability could hinder the recovery and affect revenue from real estate investments.
  
• The heavy emphasis on private credit as a growth area implies exposure to credit risks, particularly if base rates remain volatile. A downturn in credit markets could impact net margins and earnings.
  
• While the firm anticipates significant capital deployment, increasing competition and execution challenges in growing markets like India and secondaries could dilute Blackstone's ability to secure favorable returns, affecting future revenue streams.
  
• With ongoing global economic and geopolitical complexities, any misjudgment of the macroenvironment could adversely affect Blackstone's investment strategy, potentially decreasing net margins and earnings growth.

Valuation

• The analysts have a consensus price target of $162.6 for Blackstone 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 $205.0, and the most bearish reporting a price target of just $130.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $18.6 billion, earnings will come to $8.5 billion, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $168.5, the analyst's price target of $162.6 is 3.6% lower. 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.