AUM Growth to Aid BlackRock's (BLK) Top Line Amid Cost Woes
BlackRock’s BLK robust assets under management (AUM) balance, efforts to restructure the equity business and strategic acquisitions will likely keep supporting top-line growth. Given its earnings strength and solid liquidity position, the company is expected to sustain efficient capital deployments in the future, and, hence, keep enhancing shareholder value.
The Zacks Consensus Estimate for BLK’s current-year earnings has been revised upward over the past 30 days. This reflects that analysts are optimistic regarding its earnings growth potential.
However, persistently rising expenses (mainly due to higher administration costs) are expected to hurt the company’s bottom line.
Looking at its fundamentals, BlackRock’s AUM witnessed a six-year (2016-2022) compound annual growth rate (CAGR) of 8.9%, with the uptrend continuing in the first six months of 2023. Over the same period, the company’s revenues (on a GAAP basis) saw a CAGR of 6.5%.
While revenues witnessed a decline in the first half of 2023, the trend will likely reverse in the future. Given the company’s efforts to strengthen the iShares and ETF operations, and increased focus on the active equity business, its top line is expected to be positively impacted. We project total revenues to increase 0.8%, 8.6% and 15% in 2023, 2024 and 2025, respectively.
BlackRock has expanded largely via acquisitions, both domestic and overseas. Recently, the company closed the agreement to acquire London-based Kreos Capital, which will further bolster its position as the global credit asset manager. Also, it agreed to form a joint venture with Jio Financial Services Limited, named Jio BlackRock, which is set to revolutionize India's asset management industry.
In 2021, it acquired the Climate Change Scenario Model of Baringa Partners and completed the acquisition of investment management services provider, Aperio Group. Apart from these, over the years, the company has acquired several firms across the globe, expanding its footprint and market share.
However, the company’s total expenses increased, seeing a CAGR of 6.9% over the last six years (ended 2022) mainly due to a rise in general and administration costs. While expenses declined in the first six months of 2023, overall costs are expected to be elevated in the near term, given the company’s restructuring initiatives to improve operating efficiency. Our estimates for total expenses suggest seeing a CAGR of 6.5% by 2025.
BlackRock is a geographically diversified company with a presence in almost all the major markets of the world. Its dependence on overseas revenues has been gradually increasing over the past few years. Despite generating just about one-third of its revenues from overseas markets, a number of risks stemming from regulatory and political environments, foreign exchange fluctuations and performance of regional economy can affect its top-line growth.
Stocks to Consider
A couple of stocks from the finance space worth a look at are Trustmark Corporation TRMK and First Community Bankshares, Inc. FCBC.
Earnings estimates for TRMK for 2023 have been revised 12.3% upward over the past 60 days. In the past three months, TRMK’s shares have gained more than 20%.
Earnings estimates for First Community Bankshares have been revised 1.1% north for 2023 over the past 60 days. Shares of FCBC have rallied more than 35% in the past three months.
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