Calculated Acquisition of Global Infrastructure Partners Fuels Growth and Diversifies Revenue Streams

What are the underlying business or industry changes driving this perspective?

• BlackRock's strategic acquisition of Global Infrastructure Partners positions it in a fast-growing market, enhancing future management fee revenue growth.
• The transaction is expected to be accretive to earnings per share and operating margin, potentially leading to increased net income and profitability.
• With $289 billion of total net inflows in 2023 and a focus on transforming organizational structures, BlackRock is set to accelerate its organic base fee growth.
• The firm aims to align resources with high-conviction structural growth areas such as infrastructure and private markets, suggesting a focus on revenue diversification and growth.
• BlackRock's commitment to deploying technology and innovations, such as the expansion of ETF offerings and digital wealth platforms, is expected to drive long-term asset growth and enhance revenue.

How have these above catalysts been quantified?

• Analysts are assuming BlackRock's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.8% today to 30.6% in 3 years time.
• Analysts expect earnings to reach $7.2 billion (and earnings per share of $49.06) by about March 2027, up from $5.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.0x on those 2027 earnings, down from 21.9x today.
• To value all of this in today’s dollars, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

What could happen that would invalidate this narrative?

• The rapid rate rising campaign and subsequent investor repositioning into cash and money market funds may limit flows into risk assets, impacting revenue growth potential.
• The integration complexity and execution risk associated with the acquisition of Global Infrastructure Partners (GIP) could affect operational efficiency and delay realization of projected financial benefits, impacting earnings.
• A higher reliance on performance fees, as mentioned with the existing and future GIP funds, introduces variability into revenues, which could impact net margins if investment performance does not meet expectations.
• The ambition to democratize infrastructure investments for retail investors with liquidity features poses execution and regulatory risks that could affect growth in fee-related earnings.
• The strategic shifts and organizational changes post-acquisition to focus more on infrastructure investments may divert focus from other growing segments or lead to integration challenges, potentially affecting overall earnings growth trajectory.

• The analysts have a consensus price target of $901.53 for BlackRock based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with this, you'd need to believe that by 2027, revenues will be $23.6 billion, earnings will come to $7.2 billion, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $808.8, the analyst's price target of $901.53 is 10.3% 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.