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Why Earnings Beat is Less Likely for BlackRock (BLK) in Q3

Zacks Equity Research

BlackRock, Inc. BLK is slated to report third-quarter 2019 results on Oct 15, before the opening bell. While its revenues for the to-be-reported quarter are projected to improve year over year, earnings are expected to witness a decline.

In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were hurt by a decline in revenues as well as higher expenses. However, growth in assets under management (AUM) supported results to some extent.

The company does not have an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters, the average beat being 2.3%.

BlackRock, Inc. Price and EPS Surprise
 

BlackRock, Inc. Price and EPS Surprise

BlackRock, Inc. price-eps-surprise | BlackRock, Inc. Quote

Moreover, BlackRock’s business activities and prospects in the third quarter did not encourage analysts to revise earnings estimates upward. The Zacks Consensus Estimate for its earnings of $6.97 has moved down 1.4% over the past 30 days. The figure indicates a decline of 7.3% from the year-ago quarter’s reported figure.

Before we take a look at what our quantitative model predicts, let’s discuss the factors that are likely to have impacted third-quarter results.

Factors to Influence Q3 Results

BlackRock remains a dominant player in the ETF market, given its continued investments in the U.S. iShare core ETFs. Moreover, as investors are increasing allocations toward ETFs instead of alternative investments to reduce management costs, the company’s iShares inflows are expected to have remained strong in the third quarter. Thus, driven by steady inflows, BlackRock’s total AUM is likely to have improved in the to-be-reported quarter.

Supported by the expected increase in assets during the third quarter along with the company’s efforts to strengthen the iShares and ETF operations, and its increased focus on active equity business; revenues are expected to have improved in the third quarter.

The consensus estimate for sales for the third quarter is pegged at $3.74 billion, which suggests rise of 4.6% from the prior-year quarter’s reported number.

However, BlackRock might have witnessed an increase in costs in the third quarter. The company’s expenses have remained elevated over the last few years. In fact, higher general and administration costs along with its plans of improving product offerings may have resulted in an increase in expenses in the quarter.

Earnings Whispers

According to our quantitative model, chances of BlackRock beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for BlackRock is -1.06%.

Zacks Rank: BlackRock currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings surprise call.

Stocks Worth a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat this quarter, per our model.

Sallie Mae SLM has an Earnings ESP of +24.09% and sports a Zacks Rank #1 (Strong Buy) at present. The company is slated to release results on Oct 23.

Federated Investors, Inc FII is slated to release results on Oct 24. It currently has an Earnings ESP of +0.75% and a Zacks Rank #3.

Cigna Corporation CI is slated to release results on Oct 31. It presently has an Earnings ESP of +1.53% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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