BlackRock Valuation Premium Gap Has Fallen Marginally
Operating performance improves
BlackRock (BLK) continues to command a premium compared to other traditional asset managers due to its scale, operating performance, and ETF expansion. The company is now trading at a forward PE (price-to-earnings) ratio of 15.5x, compared to the industry average of 12.6x.
Overall, BlackRock’s valuations have fallen marginally in recent weeks following a strong run-up for the stock in 2016. In 1Q17, BlackRock beat net income estimates, but it missed on revenue estimates.
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The company’s peers are trading at the following forward PE ratios:
Together, these companies make up 4.3% of the Vanguard Financials ETF (VFH).
In 1Q17, BlackRock benefited from strong fund flows into iShares, positive flows in its retail and institutional divisions, and lower operating expenses.
Performance of funds
In 1Q17, BlackRock’s investment advisory performance fees rose $36 million on a YoY (year-over-year) basis. However, it fell $59 million sequentially, reflecting a fall in equity income.
In the company’s Scientific Active Equity business, 97% of its assets under management delivered above the benchmark for the three-year period. In its Active Taxable Fixed Income business, 78% of its assets performed above the benchmark for the three-year period. For the one-year period, the performances of its equities and fixed income assets stood at 82% and 66%, respectively.
BlackRock is targeting diversified offerings backed by technology solutions, global ETF business expansion, and improved operating margins. If the company can further strengthen its active fund offerings, it will be able to command more funds and higher performance fees, helping it to garner higher valuations like asset management conglomerate Berkshire Hathaway (BRK-B).