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

Zacks Equity Research

BlackRock, Inc. BLK is slated to report fourth-quarter 2017 results on Jan 12, before the opening bell. Its revenues and earnings are projected to grow year over year.

Last quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an improvement in revenues and rise in assets under management (AUM).

Moreover, the company boasts a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being nearly 3%.

BlackRock, Inc. Price and EPS Surprise
 

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

BlackRock’s business activities and prospects have encouraged analysts to revise earnings estimates for the to-be-reported quarter. The Zacks Consensus Estimate of $5.99 has increased 1% over the last 30 days. Also, the figure reflects year-over-year improvement of 16.5%.

Strong fundamentals have helped shares of the company gain 40.2% in the past year, outperforming the 32.1% growth for the industry it belongs to.

Will the rally in share price continue post Q4 earnings? To a great extent, it depends on if the company is able to maintain its trend of beating earnings estimates.

Before we discuss the factors that are likely to influence Q4 results, let’s look at what our quantitative model predicts.

A Positive Surprise in Store?

According to our quantitative model, chances of BlackRock beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has 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.

Zacks ESP: The Earnings ESP for BlackRock is +0.42%.

Zacks Rank: BlackRock currently carries a Zacks Rank #3, which when combined with a positive ESP, increases the odds of an earnings beat.

Factors to Drive Q4 Results

With its continued investments in U.S. iShare core ETFs, BlackRock remains a dominant player in the ETF market. 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 remain strong in the quarter. Driven by steady inflows, the company’s AUM is likely to witness further improvement. The Zacks Consensus Estimate for total AUM for the to-be-reported quarter is $6.15 trillion, which reflects a rise of 19.5% year over year.

As a result of higher AUM in the quarter, the company’s investment advisory, administration fees and securities lending revenues, which constitute more than 85% of the total revenues, is also expected to witness improvement. The Zacks Consensus Estimate for the same is $3.04 billion, reflecting a year-over-year rise of 5.2%.

Moreover, since the New York-based asset manager remains well diversified geographically, the average fee rate is likely to rise on the back of higher international flows amid recovering global economic conditions. Higher fee rate, coupled with growth in AUM will likely support performance fees growth. Notably, the Zacks Consensus Estimate for performance fee for the fourth quarter is $149 million, which is expected to witness growth of 15.5% year over year.

Improvement in two of the major revenue components will likely give a boost to total revenues as well. Thus, the Zacks Consensus Estimate for revenues for the quarter is $3.32 billion, which reflects growth of 14.8% year over year.

However, BlackRock might witness an increase in costs in the to-be-reported quarter. BlackRock’s expenses have remained elevated over the last few years. Moreover, its plans of restructuring the traditional actively managed equities business and improving product offerings are expected to lead to a further increase in expenses.

Other Stocks Worth a Look

Here are a few other 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.

BB&T Corporation BBT is slated to release results on Jan 18. It has an Earnings ESP of +0.15% and carries a Zacks Rank #2 (Buy).

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.28% and carries a Zacks Rank of 3. The company is also slated to release results on Jan 18.

SunTrust Banks, Inc. STI is scheduled to release results on Jan 19. It has an Earnings ESP of +0.72% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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