How BlackRock Has Maintained Its Premium Valuations amid Slowing Growth



Premium valuations

BlackRock (BLK) has historically traded at a premium compared to its peers. Currently, BlackRock is trading at a premium, with a forward price-to-earnings ratio of 16.6x as compared to the industry average of 13.3x.

How BlackRock Has Maintained Its Premium Valuations amid Sowing Growth

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

  • JPMorgan Chase & Company (JPM)—9.5x
  • Bank of New York Mellon (BK)—15.3x
  • State Street (STT)—12.9x

Together, these companies form 8.7% of the Vanguard Financials ETF (VFH).

In 1Q16, BlackRock is expected to increase in business marginally backed by 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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Major risks

The asset management industry is suffering from declining asset classes across the Americas, Europe, and emerging markets. The industry has benefited from a recovery in equities since mid-February 2016. 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.

The major risks that the company faces include ETF stagnation, higher competition (leading to pricing pressure), and substantial declines in one or multiple asset classes.

Relative outperformance

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, 90% of assets under management delivered above the benchmark for the three-year period. In its Active Taxable Fixed Income business, 91% of assets performed above the benchmark for the three-year period.

The company has invested in the 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. The company continues to invest in technology and new product offerings, but it faces challenges such as competition from new and existing players in the ETF market and slowing global growth. However, BlackRock is placed relatively well and is expected to command premium valuations over the next few years.

To know more about BlackRock, check out “BlackRock—the Biggest Asset Manager in the World.”


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