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How BlackRock Could Outperform the Industry in 3Q17

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Earnings in 3Q17

BlackRock (BLK), the world’s largest asset manager, is expected to post EPS (earnings per share) of $5.49 in 3Q17, representing 6.8% YoY (year-over-year) growth and 4.8% sequential growth. The growth is expected due to a strong flow across offerings (especially iShares), a broad market (SPX-INDEX) (SPY) rebound, and higher allocation towards equities, and expected to be partially offset by the subdued performance of alternate offerings. In 2Q17, BlackRock raked in a net inflow of $104 billion across categories. The company currently manages assets worth $5.7 trillion, compared with $4.9 trillion last year.

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In 2Q17, BlackRock posted EPS of $5.24, missing estimates. The company’s sequential performance was marginally positive, largely due to a decline in equity markets and partially offset by a marginal rise in debt market holdings. The markets rebounded from their lows in 2Q17, mainly due to indications of higher rates, as well as continued fundamental performance. In 2017, the company is expected to post EPS of $21.80, with an implied PE (price-to-earnings) ratio of 17.9x.

BlackRock’s revenue grew to ~$3.0 billion in 2Q17, with growth coming from an inflow rather than fund appreciation. In 3Q17, peers State Street (STT) and JPMorgan Chase (JPM) could also attract more funds towards equities and related offerings.

Low-cost funds

BlackRock could see a tremendous flow towards its iShares ETF offerings in 3Q17, as institutional and retail clients pour in funds in a bid to reduce management costs. Its iShares offerings have seen increased allocation in the United States, Europe, and emerging markets. BlackRock faces competition from Vanguard and State Street for US and European offerings. In this series, we’ll look at BlackRock’s expected 3Q17 performance, iShares offerings, competition, strategic initiatives, dividend yield curve, outlook, and valuation.

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