Andrew Burton
Elevator Pitch
My rating for BlackRock, Inc.’s (NYSE:BLK) stock is a Buy.
I previously previewed BLK’s financial results for the third quarter of last year with my prior article for BlackRock written on October 10, 2022. The focus of my latest write-up is BlackRock’s upcoming Q4 2022 earnings release.
Investors’ attention should be focused on BlackRock’s consensus numbers and management’s disclosures, which offer a peek into how BLK could have performed in the fourth quarter of 2022. I am of the opinion that BlackRock’s Q4 2022 bottom line will surpass the market’s expectations, and I also have a favorable view of BLK’s long-term growth outlook. This supports my decision to upgrade the investment rating for BlackRock from a Hold to a Buy.
BLK’s Fourth Quarter Earnings Announcement Date
BlackRock will be revealing how it performed in the fourth quarter of the prior year on January 13, 2023, according to BLK’s earlier December 30, 2022 press release.
I outline the Wall Street analysts’ expectations of BlackRock’s Q4 2022 financial performance in the next section.
The Sell-Side’s Consensus Q4 2022 Financial Estimates For BlackRock
The analysts hold the view that Q4 2022 should have been a tough quarter for BLK.
The market forecasts that BlackRock’s top line will decrease by -17.4% from $5,106 million for the fourth quarter of 2021 to $4,216 million in the final quarter of the previous year as per S&P Capital IQ data. This compares unfavorably with BLK’s top line performance in prior quarters. BlackRock’s revenue grew by +14.0% in Q4 2021, while its top line contraction for Q3 2022 was a relatively narrower -14.6%.
The sell-side also doesn’t have a favorable view of BLK’s bottom line performance in the last quarter of 2022. The Wall Street analysts project that BlackRock’s YoY normalized earnings per share or EPS contraction will widen substantially from -12.8% for Q3 2022 to -24.6% in Q4 2022. As a comparison, BLK had delivered a positive normalized EPS growth of +2.4% in Q4 2021.
A January 5, 2023 article published by financial news publication Pensions & Investments cited data from Moody’s (MCO) suggesting that global assets under management contracted by over -15% in 2022. As such, it shouldn’t be a surprise that BlackRock is negatively impacted by the downturn in the asset management industry, and that the sell-side analysts have a dim view of BLK’s Q4 2022 financial performance.
My Bet Is On A Fourth Quarter Earnings Beat For BLK
My opinion is that BlackRock’s actual financial results for Q4 2022 should come in above the sell-side analysts’ expectations.
BLK’s presentation at Goldman Sachs’ (GS) recent 2022 US Financial Services Conference held on December 6, 2022 reveals a number of key metrics which implies that BlackRock is likely to have done much better in Q4 2022 than what the market anticipated.
BlackRock stressed at the GS Financial Services Conference that the company should have been able to achieve a “low single digit” increase in organic base fee last year. BLK also left its +5% “through the cycle” organic base fee expansion goal unchanged.
The company’s fund inflow metrics are also decent. At the GS Financial Services Conference in December, BlackRock disclosed that its 2022 year-to-date net inflows as of early-December for iShares, fixed income ETFs, and active fixed income funds, were still reasonably good at $200 billion, $115 billion, and $35-40 billion, respectively.
A December 18, 2022 Financial Times article citing data from Morningstar (MORN) also highlighted that BLK took market share from its competitors. In this Financial Times article, it is noted that BlackRock secured “$144bn in net new money” inflows in the first 11 months of 2022, as opposed to “net outflows of $138bn” for the industry at large.
It is also probable that BlackRock has been more effective at cost management in Q4 2022 than what investors would have expected. BLK emphasized at the recent GS Financial Services Conference that it understand there are reasons for “resetting our level of expense relative to our level of revenue.” Therefore, there is a good chance that BLK’s actual costs incurred and profit margins for the final quarter of last year might have come in better than what the current consensus financial figures imply.
In summary, I see BlackRock delivering an earnings beat when it releases its Q4 2022 results this Friday.
Favorable View Of BlackRock’s Long-Term Growth Prospects
There are two factors that support my positive opinion of BLK’s growth potential in the long run.
One key factor is the long growth runway for BlackRock’s Alternatives business. According to data disclosed at the recent December 2022 GS Financial Services Conference, BLK’s capital raising for its Alternatives business is progressing well, as it has already met “two-thirds” of its three-year fundraising goal of $100 billion. As it stands now, the Alternatives business’s current assets under management of approximately $300 billion puts it in the list of the 10 largest Alternatives managers. There is definitely room for BlackRock to expand its Alternatives business AUM further and climb up the Alternatives manager rankings in time to come.
The other factor is the growing trend of outsourcing. Blackrock has witnessed strong demand for its Outsourced Chief Investment Officer or OCIO offering in recent times. BLK revealed at the GS Financial Services Conference that it “generated about $300 billion-ish from these new (outsourcing) opportunities”, and also mentioned that “the pipeline (for OCIO) remains really strong.” As a reference, research firm Cerulli Associates’ forecasts point to global OCIO assets under management growing at a +7.5% CAGR for the 2022-2025 time period.
Closing Thoughts
I award a Buy rating to BLK now. In the short term, a potential Q4 2022 earnings beat will be a positive surprise and help to push up BlackRock’s share price. In the intermediate to long term, I like BLK’s growth opportunities in the Alternatives and OCIO segments.
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