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BlackRock: Strategic Initiatives amid Slowing Alpha Returns

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BlackRock: Strategic Initiatives amid Slowing Alpha Returns PART 1 OF 10

BlackRock Continues to Add Assets amid Volatile Markets

Stabilizing earnings

BlackRock (BLK), the world’s largest asset manager, has seen strong operating performance over the past few quarters. It found support in consistent inflows, rising broad markets (SPX-INDEX)(SPY), periodic event driven volatility, improving fundamentals, and retail wealth creation. The asset management giant raked in $104 billion in net inflows in 2Q17, scaling its assets under management to $5.69 trillion.

BlackRock Continues to Add Assets amid Volatile Markets

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BlackRock’s performance in 2H17 should be impacted by high valuations of equity and exits from debt offerings due to rising rates. The company posted adjusted earnings per share or EPS of $5.24, lower than the analyst estimates of $5.40. The quarter-over-quarter performance remained stable due to subdued equity markets and a marginal rise in debt market holdings. Wall Street analysts have been consistently pointing at high equity valuations over the past few months. However, unless we see some major negative trigger, markets are expected to trend higher at a slower pace.

For fiscal 2017, BLK is expected to post EPS of $21.8, which represents growth of 13.0% and implies a PE (price-to-earnings) ratio of 17.2x.

BlackRock’s revenue climbed to ~$3.0 billion—growth of 6% on the back of new flows rising markets. On June 30, 2017, the company was managing total assets of ~$5.7 trillion, compared to ~$4.9 trillion a year previously and ~$5.4 billion in the previous quarter. BlackRock’s peers State Street (STT) and J.P. Morgan (JPM), have also attracted long-term net inflows in the recent quarters on ETFs and mutual funds.

ETFs lead

BlackRock continued to see higher traction toward its ETFs offerings. iShares offerings for the United States, Europe, and emerging markets have seen increased allocation over the past few years. The company faces competition from Vanguard in this space, especially for offerings in Europe.

In this series, we’ll study BlackRock’s expected performance, flows, iShares offerings, dividends, outlook, competition, strategic initiatives, and valuations.

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