Expanding Digital Infrastructure And Credit Ventures To Fuel Dynamic Growth And Profitability

Key Takeaways

• Strategic acquisitions and expansion in data centers strengthen Blackstone's market position, leveraging AI demand to drive revenue and margin growth.
  
• Growth in private credit and real estate holdings suggests an opportunity for increased revenue, enhanced margins, and sustained earnings growth through diverse investments.
  
• Blackstone faces risks from real estate exposure, rapid capital deployment, potential interest rate changes, investor skepticism, and increased competition, all impacting growth and margins.

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 significant increase in investment pace and deployment of $123 billion over the last 12 months positions them to capitalize on future asset value increases, potentially boosting revenue and earnings.
  
• The acquisition of AirTrunk and expansion in data centers globally highlight Blackstone’s strong positioning in digital infrastructure, which is expected to drive revenue growth and margin expansion due to high demand for AI and computing power.
  
• Recovery and improved investor sentiment in commercial real estate, coupled with Blackstone’s large real estate holdings, are expected to fuel appreciation and enhance net margins as values rise.
  
• The rapid growth in Blackstone's private credit business, particularly in investment-grade credit, suggests an opportunity for sustained revenue increase and stable net margins due to premium revenue streams.
  
• Blackstone's strong pipeline of fundraising and higher commitments across various strategies, along with momentum in private wealth and strategic platforms, are expected to significantly drive future fee-related earnings growth.

Blackstone Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Blackstone's revenue will grow by 21.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.0% today to 42.8% in 3 years time.
• Analysts expect earnings to reach $8.5 billion (and earnings per share of $6.73) by about November 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 30.6x on those 2027 earnings, down from 63.8x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 1.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.84%, as per the Simply Wall St company report.

Blackstone Future Earnings Per Share Growth

Risks

• Blackstone's high exposure to commercial real estate could pose risks if the anticipated recovery in this sector is slower than expected, which could negatively impact future revenues and earnings.
  
• The recent rapid deployment of capital, while strategic, comes with execution risks that may affect realization values and, subsequently, net margins if investments do not perform as anticipated.
  
• The reliance on low interest rates and tight spreads to fuel transaction activity could be a vulnerability if macroeconomic conditions change unexpectedly, affecting Blackstone's revenue growth.
  
• Continuation of net outflows from products like BREIT could signal investor skepticism or liquidity concerns, potentially impacting fee-related earnings.
  
• Increased competition in private credit and traditional sectors may compress margins and challenge Blackstone's ability to maintain its growth trajectory and profitability.

Valuation

• The analysts have a consensus price target of $168.9 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 $208.0, and the most bearish reporting a price target of just $134.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $19.9 billion, earnings will come to $8.5 billion, and it would be trading on a PE ratio of 30.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $184.91, the analyst's price target of $168.9 is 9.5% 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.