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Asset Growth Aids BlackRock's Top Line Despite High Costs

Zacks Equity Research

BlackRock’s BLK initiatives to restructure the actively managed equity business and expand globally through acquisitions are expected to boost the top line. Also, the company’s capital deployment actions (share buyback and regular dividend payouts) reflect strong balance sheet.

Its Zacks Consensus Estimate for current-year earnings has been revised marginally upward over the past 30 days, reflecting that analysts are slightly optimistic regarding its earnings growth potential.

However, the company’s profitability is likely to be impacted by increasing expenses on account of rise in general and administration costs. Thus, the company currently carries a Zacks Rank #3 (Hold).

Shares of BlackRock have gained 25% so far this year, outperforming the industry’s growth of 9.6%.

Looking at its fundamentals, the company’s assets under management (AUM) witnessed a five-year CAGR of 6.5% (2014-2018). Moreover, revenues (on a GAAP basis) witnessed a CAGR of 6.4% over the same period. Given the company’s efforts to strengthen iShares and ETF operations, its solid AUM balance, and increased focus on active equity business, revenues are expected to increase further.

Moreover, BlackRock expanded primarily via buyouts. In May, it acquired eFront. In 2018, it acquired Citibanamex’s Asset Management business in Mexico and Tennenbaum Capital. Apart from these, over the years, the company expanded presence by acquiring several firms globally. With a strong liquidity position, BlackRock remains well-positioned to grow through acquisitions.

However, its expenses witnessed a CAGR of 7.2% over the last five years (ended 2018). As the company continues to undertake restructuring initiatives to modify the size and shape of workforce, and improve operating efficiency, expenses are expected to remain elevated in the near term. Thus, higher costs might hurt the bottom line.

Further, BlackRock is a geographically diversified company, which makes it highly dependent on overseas revenues. This factor remains a concern and might hamper financials.

Some better-ranked stocks from the finance space are Hercules Capital, Inc HTGC, Ares Capital Corporation ARCC and On Deck Capital, Inc ONDK. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hercules Capital’s Zacks Consensus Estimate for current-year earnings has been revised 2.9% upward over the past 30 days. The company’s shares have gained 9% in the past three months.

Ares Capital’s earnings estimates for the current year have been revised 1.6% upward over the past 30 days. Its shares have gained marginally in the past three months.

Over the past 30 days, On Deck Capital has witnessed an upward earnings estimate revision of 2.9% for the current year. Additionally, the stock has gained 28.1% in the past three months.

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