Infrastructure, Data Centers And Private Wealth Will Face Mixed Outcomes

Key Takeaways

• Rapid growth in infrastructure and private wealth may lead to operational inefficiencies, impacting Blackstone's future earnings negatively.
  
• Heavy reliance on large-scale deployments and technological shifts could pose a risk to Blackstone's future revenue and profitability.
  
• Strong growth across infrastructure, private wealth, and credit businesses indicates Blackstone's strategic expansions are enhancing revenue potential and solidifying market position.

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 rapid growth in its infrastructure and private wealth businesses might lead to challenges in sustaining high net margins, as the associated upfront costs and investment focus could lead to operational inefficiencies, impacting future earnings negatively.
  
• Despite predictions of strong market tailwinds, such as pro-growth and pro-deregulation policies, the continued volatility and uncertainty in U.S. Treasury yields and inflation could strain revenue growth as investors may remain hesitant, impacting Blackstone's future revenue generation prospects.
  
• The heavy reliance on large-scale deployments, such as the $134 billion in 2024, could indicate a saturation point risk, where Blackstone may find fewer advantageous opportunities for capital deployment, potentially leading to lower future earnings.
  
• Blackstone's move into rapidly evolving and capital-intensive sectors, such as digital infrastructure and data centers, poses a risk of underperformance if technological advances shift quickly, resulting in less predictable future revenues and profitability.
  
• Increased sensitivity in real estate and slower private equity realizations, coupled with a weaker recovery outlook and more competitive markets, may pressure Blackstone's ability to sustain its historical growth trajectory, thereby negatively affecting net earnings over time.

Blackstone Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Blackstone compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Blackstone's revenue will grow by 15.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 20.6% today to 53.1% in 3 years time.
• The bearish analysts expect earnings to reach $10.2 billion (and earnings per share of $8.26) by about July 2028, up from $2.5 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 bearish analyst cohort, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, down from 52.3x today. This future PE is lower than the current PE for the US Capital Markets industry at 29.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Blackstone Future Earnings Per Share Growth

Risks

• Blackstone has reported strong growth in its infrastructure business, demonstrating remarkable investment performance with 17% net returns annually. This success has led to an increase in assets under management, suggesting potential for enhanced future revenue and earnings.
  
• The firm's strategic expansion in private wealth, raising $57 billion in inflows in the fourth quarter alone and $171 billion for the year, indicates robust demand and momentum in this channel, which could contribute positively to revenue and net margins.
  
• Blackstone's credit and insurance business saw notable momentum, with inflows surpassing $100 billion in 2024, composing 60% of the firm’s total inflows. This reflects a strong contribution to fee-related earnings and could sustain growth in distributable earnings.
  
• Significant advancements in Blackstone's private credit offerings, particularly in investment-grade private credit, have resulted in management over $100 billion, primarily benefiting insurance clients. This positions the firm to capture higher revenues and potentially improved net margins as demand continues.
  
• The global demand for infrastructure investments, digital transformation, and other growth sectors point to a healthy pipeline for Blackstone’s portfolio, potentially leading to improved sales and operational margins as these markets expand and stabilize.

Valuation

• The assumed bearish price target for Blackstone is $124.55, which represents two standard deviations below the consensus price target of $160.6. 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 more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $202.0, and the most bearish reporting a price target of just $124.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $19.2 billion, earnings will come to $10.2 billion, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 7.8%.
• Given the current share price of $171.96, the bearish analyst price target of $124.55 is 38.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.