BlackRock (NYSE: BLK) is scheduled to report its fiscal Q3 2021 results on Wednesday, October 13. We expect BlackRock to beat the consensus estimates for revenues and earnings. The asset management giant posted 32% y-o-y growth in its top line in the second quarter of 2021, primarily driven by higher base fees and a significant jump in performance-based revenues. This was due to strong fund inflows and growth in Assets under Management (AuM) in the quarter. Despite the higher revenues, the company reported only 14% y-o-y growth in the adjusted net income due to higher tax expenses. We expect the same trend to continue in the third quarter, with iShares and equity investments taking the lead in AuM growth.
Our forecast indicates that BlackRock’s valuation is $967 per share, which is about 14% higher than the current market price of around $844. Our interactive dashboard analysis on BlackRock’s Earnings Preview has more details.
(1) Revenues expected to be marginally ahead of the consensus estimates
BlackRock’s revenues for full-year 2020 were $16.2 billion – up 11% y-o-y, mainly driven by the increase in AuM. This was partially due to the headwinds in other industries due to the Covid-19 crisis, which led to the diversion of funds toward BlackRock.
- The company witnessed a 4% y-o-y growth in the equity investment revenues, followed by an 8% increase in fixed-income and a large 57% jump in alternate investments. It could be attributed to higher AuM – total AuM grew 17% y-o-y to $8.68 trillion at the end of December 2020. The total AuM benefited from higher asset valuations and net fund inflows of around $391 billion in the year.
- The momentum continued in the first quarter of 2021, with the company reporting a 19% y-o-y growth in revenues to $4.4 billion. The Investment advisory, administration fees, and securities lending revenue from equity investments, which generate around 40% of the total revenues, increased 26% y-o-y. It could be attributed to a 60% y-o-y rise in equity AuM to $4.75 trillion. The top-line increased 32% y-o-y to $4.8 billion in the second quarter, thanks to a 48% jump in the equity investment revenues – equity AuM grew 43% to $5 trillion. Overall, the company’s Assets under Management (AuM) touched $9.5 trillion in Q2 – 30% above the year-ago period and we expect it to maintain its growth trajectory over the coming months.
- BlackRock technology services revenues grew 17% y-o-y to $1.1 billion in 2020, primarily reflecting higher revenue from Aladdin. Further, the segment increased 12% in Q1, benefiting from the acquisition of Aperio. The same was evident in the second quarter, with the segment posting 14% growth. We expect it to continue the same trend in the subsequent quarters.
- Overall, we expect BlackRock’s revenues to remain around $18.9 billion for FY2021.
Trefis estimates BlackRock’s fiscal Q3 2021 revenues to be around $4.95 billion, marginally above the $4.90 billion consensus estimate. We expect the growth in AuM to drive results for the third quarter, too.
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Going forward, we expect BlackRock to continue to drive its revenues on the back of improvement in its asset base. Further, the technology services stream is likely to maintain its positive growth. Our dashboard on BlackRock’s revenues offers more details on the company’s operating segments along with our forecast for the next two years.
2) EPS is likely to beat the consensus estimates
BlackRock Q3 2021 adjusted earnings per share is expected to be $9.94 per Trefis analysis, almost 4% above the consensus estimate of $9.55. The higher revenues in 2020 translated into a 10% increase in the adjusted net income. Further, the profitability number grew 49% y-o-y in the first quarter. That said, the second-quarter results were somewhat different, with the company posting only 14% growth in the net income to $1.4 billion – much lower as compared to the growth in revenues. It was due to higher tax expense, as a result of legislation enacted in the UK increasing its corporate tax rate. We expect the same trend to continue in the third quarter.
Moving forward, we expect BLK’s net income margin figure to remain stagnant in FY2021. However, its adjusted net income is likely to increase to $5.8 billion – up 18% y-o-y, leading to an EPS of $37.68.
(3) Stock price estimate 14% more than current market price
We arrive at BlackRock’s valuation, using an EPS estimate of around $37.68 and a P/E multiple of just below 26x in fiscal 2021. This translates into a price of $967, which is 14% above the current market price of around $844.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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