What to Look For From BLK

Key Takeaways

  • Analysts estimate adjusted EPS of $8.92 vs. $8.34 in Q4 2019.
  • Organic growth in AUM is expected to slow YOY.
  • Revenue is expected to rise amid strong financial markets despite COVID-19 pandemic.

BlackRock Inc. (BLK), the world’s largest asset manager, is facing major challenges these days just as the company is grappling with slowing growth. BlackRock must redirect billions of dollars worth of investments to comply with U.S. government sanctions against Chinese companies with military connections. As a result, BlackRock funds have to divest the blacklisted companies or risk losing U.S. investors who are no longer allowed to purchase shares of funds holding these companies.

As BlackRock readjusts its funds, investors will be focused on the company’s overall performance when it reports earnings on January 14, 2021 for Q4 FY 2020. Analysts expect modest gains in both adjusted earnings per share (EPS) and revenue compared to the year-ago quarter.

Investors also will be closely watching the firm’s organic growth in assets under management (AUM), a key metric for asset managers that gauges the growth in AUM from attracting new clients and more money from existing clients. Analysts forecast organic growth in AUM to slow compared to the same three-month period a year ago.

Shares of BlackRock have outpaced the broader market for most of the past year. The stock plunged with the rest of the market beginning in late February 2020 but rebounded from the lows reached in the second half of March at a much quicker, market-beating pace. BlackRock shares have provided a total return of 52.5% over the past 12 months, more than three times the S&P 500’s total return of 15.6%.

Source: TradingView.

The stock has been supported by strong financial performance in recent quarters. BlackRock reported a 29.0% rise in adjusted EPS in Q3 FY 2020, its second fastest rate of growth in at least 15 quarters. Revenue rose 18.3%, its fastest pace since Q4 FY 2017. BlackRock said that revenue growth reflected higher performance fees and continued organic growth.

In Q2 FY 2020, adjusted EPS rose 22.3% compared to the year-ago quarter. It was a significant improvement from the decline of 0.2% reported in Q1 FY 2020. Revenue for the second quarter rose 3.5%, driven by higher performance fees and strong growth in technology services revenue.  The firm’s shares mildly retreated over the next week before continuing their upward trend that lasted until early September.

Analysts forecast adjusted EPS to rise 6.9% on a 6.8% increase in revenue for Q4 FY 2020. For full-year 2020, adjusted EPS is expected to grow 13.7% while annual revenue rises 9.9%. It would mark the fastest pace of revenue growth since 2017.

BlackRock Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Adjusted Earnings Per Share ($) 8.92 8.34 6.08
Revenue ($B) 4.2 4.0 3.4
Organic Growth in Assets Under Management (%) 1.5 1.9 0.8

Source: Visible Alpha

As mentioned above, investors will also be focused on BlackRock’s organic growth in AUM. As an asset manager, BlackRock manages the funds entrusted to it by its clients. It offers and manages various financial products, such as its iShares line of exchange-traded funds (ETFs) and mutual funds. The assets held by these funds comprise the firm’s AUM. Those assets can increase inorganically through price appreciation or favorable exchange-rate movements, or organically by attracting new clients or more money from existing clients. Organic growth in AUM excludes the effects of rises in asset prices and currency fluctuations, focusing on the firm’s ability to attract fresh money from new and existing clients alike.

BlackRock posted a 1.8% organic increase in AUM in Q3 2020, marking the fastest pace since Q4 FY 2019 and slightly faster than the 1.6% pace posted in Q2 FY 2020. Analysts expect organic growth in Q4 FY 2020 to decelerate to 1.5%, a slower pace than the previous two quarters as well as the year-ago quarter. For full-year 2020, organic growth in AUM is expected to be 5.2%, a slowdown from 2019’s pace of 7.2%.