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Why is Earnings Beat Less Likely for BlackRock (BLK) in Q4?

Zacks Equity Research

BlackRock, Inc. BLK is slated to report fourth-quarter and 2018 results on Jan 16, before the opening bell. Its revenues and earnings for the to-be-reported quarter are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an improvement in revenues, rise in assets under management (AUM) and long-term inflows.

Moreover, the company boasts an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 4.2%.

BlackRock, Inc. Price and EPS Surprise
 

BlackRock, Inc. Price and EPS Surprise | BlackRock, Inc. Quote

However, BlackRock’s business activities and prospects in the to-be-reported quarter did not encourage analysts to revise earnings estimates upward. The Zacks Consensus Estimate for earnings of $6.68 has decreased 2.3% over the past 30 days. Nonetheless, the figure reflects a year-over-year improvement of 7.1%.

The Zacks Consensus Estimate for sales for the fourth quarter is $3.61 billion, which reflects growth of 4% year over year.

Despite robust fundamentals, the company’s price performance does not seem impressive. In the past year, its shares have lost 28% compared with 30.6% decline recorded by the industry.

Will this price performance improve post Q4 earnings release? To a great extent, it depends on whether or not the company is able to beat earnings estimates this time around.

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

Factors to Influence Q4 Results

BlackRock remains a dominant player in the ETF market, given its continued investments in U.S. iShare core ETFs. Moreover, as investors are increasing their allocations toward ETFs instead of alternative investments, in order to reduce management costs, the company’s iShares inflows are expected to have remained strong in the fourth quarter. Thus, while unfavorable foreign currency adjustments during the quarter might have had an adverse impact on AUM, total AUM is likely to improve, driven by steady inflows. The Zacks Consensus Estimate for total AUM for the fourth quarter is pegged at $6.45 trillion, reflecting growth of 2.6% year over year.

Despite an expected increase in assets during the fourth quarter, investment advisory, administration fees and securities lending revenues, which constitute more than 80% of the company’s total revenues, is expected to decline. The Zacks Consensus Estimate for the same is $3.10 billion, reflecting 10.6% year-over-year decline.

Nonetheless, performance fee, which is also a major revenue component, is likely to increase during the quarter to be reported. The Zacks Consensus Estimate for performance fees for the fourth quarter is pegged at $308 million, which represents an improvement of 8.1% from the prior-year quarter.

BlackRock might witness an increase in costs in the fourth quarter. The company’s expenses remained elevated over the last few years. In fact, higher compensation, as well as marketing costs (related to the company’s brand campaign), along with its plans for improving product offerings, may result in an increase in expenses.

Earnings Whispers

According to our quantitative model, chances of BlackRock beating the Zacks Consensus Estimate in the fourth 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 -4.42%.

Zacks Rank: BlackRock currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

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

U.S. Bancorp USB is slated to release results on Jan 16. It has an Earnings ESP of +0.15% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SunTrust Banks, Inc. STI is scheduled to release results on Jan 18. It has an Earnings ESP of +0.07% and a Zacks Rank #3.

Zions Bancorporation, National Association ZION has an Earnings ESP of +1.09% and it presently carries a Zacks Rank of 3. The company is slated to release results on Jan 22.

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