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S&P Upgrades Outlook on BlackRock

Zacks Equity Research

Standard & Poor's Ratings Services (S&P) – a division of McGraw Hill Financial, Inc. (MHFI) – has upgraded its outlook on BlackRock, Inc. (BLK). The rating agency has revised the company’s outlook to Positive from Stable, while affirming ‘A+/A-1’ issuer credit ratings and senior unsecured rating of ‘A+’.

S&P’s outlook upgrade is based on BlackRock’s efforts to improve leverage ratio and its robust financial performance over the past few quarters. Over the last one year, the company repaid approximately $1.35 billion of debt.

In Dec 2012, BlackRock repaid $500 million of maturing long-term debt from issuance of debt in May 2012. Further, in the first quarter, the company repaid $100 million of short-term borrowings. Moreover, in May this year, BlackRock paid back $750 million of maturing debt from cash available in hand. Thus, the company’s total borrowing is at present below $5.0 billion, compared with $6.3 billion in Jun 2012.

Additionally, S&P’s outlook affirms its belief in BlackRock’s ability to redeem roughly $1.0 billion of debt maturing in Dec 2014, without any extra debt issuance. Further, if the company’s earnings momentum and strong cash flow generation continue, the rating agency could raise BlackRock’s credit ratings as well.

S&P stated that BlackRock’s current ratings indicate the company’s leading position and unmatched range of asset management operations. As of Mar 31, 2013, assets under management (:AUM) were $3.9 billion, up 7% year over year.

For BlackRock, the outlook upgrade is a catalyst. Further, the company’s enhanced capital deployment activities and acquisition plans will prove accretive to its overall performance. BlackRock’s initiatives to improve market share in the ETF business is also commendable.

Currently, BlackRock carries a Zacks Rank #3 (Hold). Better performing stocks include Noah Holdings Limited (NOAH) and Virtus Investment Partners, Inc. (VRTS), both of which have a Zacks Rank #1 (Strong Buy).

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