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BlackRock Trades at a Premium on Its Strong Operating Performance

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Premium valuations

BlackRock (BLK) has historically traded at a premium compared to its peers. Currently, BlackRock is trading at a premium, with a price-to-earnings ratio of 15.6x compared to the industry average of 13.2x.

BlackRock is leveraging on its scale and diversified product offerings across major end markets. This enables BlackRock to attract a premium over its competitors. Its peers are trading at the following price-to-earnings ratios:

  • JPMorgan Chase (JPM): 10.8x
  • Bank of New York Mellon (BK): 15.6x
  • State Street (STT): 15.8x

Together, these companies form 1.7% of the SPDR S&P 500 ETF (SPY).

In 3Q15, BlackRock benefited from its global integrated model, which caters to clients from around the world and provides innovative offerings across active, iShare, and alternative strategies.

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Relative outperformance

The asset management industry is suffering from a fall in asset value across the Americas, Europe, and emerging markets. However, BlackRock has been successful in attracting new client funds in almost all of its major offerings. The company is building on diversification across investment styles, distribution channels, and geographies in order to generate double-digit earnings per share growth.

BlackRock has been focusing on improving its investment performance by deploying its best talent for managing client funds. In the company’s Scientific Active Equity business, 97% of assets under management (or AUM) delivered above the benchmark for the three-year period.

In its Active Taxable Fixed Income business, 90% of assets performed above the benchmark for the three-year period. The company has invested in Fundamental Equity business, hiring new talent in technology and unifying its global equity platform in order to generate superior returns on the portfolio.

BlackRock continues to outperform the industry in the ETF market by attracting new funds in the most volatile markets.

BlackRock continues to invest in technology and new product offerings, but the company faces challenges such as competition from new and existing players in the ETF market and slowing global growth.

However, BlackRock is placed well in relative terms and is expected to command premium valuations over the next few years.

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