BlackRock Earnings: Lower Taxes Salvage Weak Flows and Performance
Even with a downward revision, we view the firm’s stock as only modestly undervalued.
Key Morningstar Metrics for BlackRock
- Fair Value Estimate: $730.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
What We Thought of BlackRock’s Earnings
While there was little in BlackRock’s BLK third-quarter earnings that would alter our long-term view of the company, we expect to slightly reduce our fair value estimate of $730.00 per share to reflect weaker flows and market performance than we forecast. Even with this downward revision, we view the shares as only modestly undervalued right now.
BlackRock closed out September 2023 with $9.101 trillion in managed assets, down 3.4% sequentially but up 14.3% year over year and 5.9% since the start of the year. This was below our forecast for $9.338 trillion in assets under management, or AUM. Net long-term outflows of $13 billion during the quarter were below our expectation of $65 billion in positive flows, reflective of annualized organic AUM growth of negative 0.5% (well below our long-term target of 3%-5% and management’s target of 5%).
While average AUM was up 10.8% year over year during the third quarter, BlackRock recorded only a 4.2% increase in base fee revenue growth, as product mix shift and changing fee rates led to a 5.9% decline in the firm’s realization rate. Total revenue was up 4.9% year over year, improved by higher technology services revenue during the period. Year-to-date top-line growth of negative 2.3% was below our full-year forecast of flattish revenue.
BlackRock posted a 110-basis-point year-over-year decline in year-to-date GAAP operating margins to 35.5% due to higher compensation and fund administration costs. On an adjusted basis, year-to-date operating margins were up 30 basis points to 42.3%. Adjusted earnings per share of $10.91 for the September quarter was better than our forecast and the FactSet consensus estimate of $8.50 per share, primarily due to a significantly lower tax rate during the period.
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