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Where BlackRock’s Valuations Are Rising Today

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Updated

Valuations premium

BlackRock (BLK) continues to command a premium valuation among other traditional and alternative asset managers. This premium has come on the back of diversified offerings. The rebound in the company’s preference for ETF offerings since 4Q16 has also helped.

The company is now trading at a forward PE (price-to-earnings) ratio of 17.3x, as compared to the industry average of 13.5x.

Overall, BlackRock’s valuations have risen in recent weeks, following strong flows and estimate beats for the past two quarters. In 1Q17, BlackRock beat its net income estimates, though it missed on its revenue estimates.

The company’s peers are trading at the following forward PE ratios:

  • T. Rowe Price (TROW): 13.3x
  • Bank of New York Mellon (BK): 12.8x
  • State Street (STT): 13.3x

Together, these companies make up 4.5% of the Vanguard Financials ETF (VFH).

In 2Q17, BlackRock has been witnessing higher flows toward debt offerings, mainly due to the Fed’s interest rate hikes. The company is seeing higher flows toward iShares, subdued performances among active equity funds on broader market performance, and lower operating expenses.

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Performance driving flows

BlackRock’s investment advisory performance rose $36 million in 1Q17 on a YoY (year-over-year) basis. However, it fell $59 million sequentially, reflecting a fall in equity income. BlackRock’s major offerings include its Scientific Active Equity business, and its Active Taxable Fixed Income business, which have delivered 82% and 66% above benchmark performance, respectively, over the one-year period.

BlackRock’s diversified offerings backed by technology solutions have helped the company bring in new assets at lower costs and higher efficiency. The company foresees further improvement in valuations if it can gain more diversification and sustainable earnings in line with conglomerates like Berkshire Hathaway (BRK-B).

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