{"id":9891,"date":"2023-05-17T08:45:36","date_gmt":"2023-05-17T12:45:36","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/blackrock-good-defensive-stock-to-buy-nyseblk\/"},"modified":"2023-05-17T08:45:37","modified_gmt":"2023-05-17T12:45:37","slug":"blackrock-good-defensive-stock-to-buy-nyseblk","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=9891","title":{"rendered":"BlackRock: Good Defensive Stock To Buy (NYSE:BLK)"},"content":{"rendered":"
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Overview<\/h2>\n

Asset management goliath BlackRock (NYSE:BLK<\/span>) had a mixed, yet solid, start to its year, with net income dropping 19.43% y\/y while AUM increased 5.8% q\/q to $9.1 trillion. The firm’s base management fees (non-performance portion) decreased 9% y\/y to $3.5B. These figures amounted to 5% annualized organic asset growth and 1% organic base fee growth.<\/span><\/p>\n

BlackRock’s unique role as a leader in the alternative investments space makes it an interesting company to watch during the current economic context. As financial pressures and consumer flight continue to ripple across the banking sector, it is reasonable that BlackRock may stand to benefit from an asset capture perspective. The universe of alternative investment vehicles, within which BlackRock is a leader, could very well provide the combination of security and yield that investors are seeking in this current environment.<\/p>\n

The firm’s latest quarter of ongoing increases in its assets under management indicates that it indeed continues to be a destination for capital in these turbulent times. This performance extended strong results from <\/span>2022, in which BlackRock received $307B in net asset inflows and captured roughly 1\/3 of long-term industry aggregate flows. Along with this, the company’s massive exposure to fixed income products has made it a direct beneficiary of ongoing rate increases – something the company’s President referred to as a ‘once in a generation opportunity’ on its latest conference call:<\/span><\/p>\n

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This is really a once in a generation opportunity in fixed income and clients have been over the last many years, because of low rates, underweighted in fixed income. So at BlackRock, we are very well positioned with our $3.3 trillion fixed income and cash platform.<\/p>\n<\/blockquote>\n

This article will review BlackRock’s fundamental positioning and see where the stock should be headed.<\/p>\n

Fundamentals<\/h2>\n

Given BlackRock’s tenure as a public company (IPO 1999) we can sensibly review annual financial data going back a decade.<\/p>\n

Here we see a decade of choppy top line growth, with a notable acceleration in 2020 that petered out in 2022. What is interesting about this trendline is that BlackRock hit double digit growth in 2020 while already being such a large enterprise ($16.2B revenue that year). Revenue growth subsequently showed an additional year of acceleration to 19.56% before last year’s 7.75% decline.<\/p>\n

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\"Seeking<\/span>
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Seeking Alpha<\/p>\n<\/figcaption><\/figure>\n

\"Seeking<\/span>
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Seeking Alpha<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

These last 3 years appear distinct relative to BlackRock’s operating history and I would be cautious around extrapolating them for the time being. If anything we can garner that this company can still grow at its size, but that it also can very well shrink. The high y\/y revenue growth volatility is common across large financial services firms with significant exposure to alternatives (see Goldman Sachs).<\/p>\n

This growth has occurred with somewhat lower gross margins long-term, with an average gross margin around 50% in recent years. This represents a decline from the 54% the firm was able to generate during the first 3 years of the decade, but has held steady at this new level.<\/p>\n

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\"Seeking<\/span>
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Seeking Alpha<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Operating margins decreased by a similar amount over that time period and fluctuate across the 35-38.5% range primarily.<\/p>\n

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\"Seeking<\/span>
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Seeking Alpha<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Interestingly, net margins have proved more variable than gross or operating margins and are closer to their decade average of 30.11%. This decade-long average, as well as BlackRock’s latest yearly net margin of 28.97%, continue to exceed the financial sector median of 25.80%.<\/p>\n

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\"Seeking<\/span>
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Seeking Alpha<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Valuation<\/h2>\n

Altogether these results have yielded consistent growth in the company’s earnings per share. Using a 3 year CAGR to smooth out y\/y volatility, we can see that BlackRock generated double-digit EPS growth 4 years out of the last 7 on a rolling basis.<\/p>\n

<\/span><\/p>\n\n\n\n\n
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Fiscal Year<\/p>\n<\/td>\n

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2013<\/p>\n<\/td>\n

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2014<\/p>\n<\/td>\n

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2015<\/p>\n<\/td>\n

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2016<\/p>\n<\/td>\n

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2017<\/p>\n<\/td>\n

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2018<\/p>\n<\/td>\n

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2019<\/p>\n<\/td>\n

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2020<\/p>\n<\/td>\n

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2021<\/p>\n<\/td>\n

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2022<\/p>\n<\/td>\n<\/tr>\n

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Diluted EPS<\/p>\n<\/td>\n

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$16.87<\/p>\n<\/td>\n

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$19.25<\/p>\n<\/td>\n

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$19.79<\/p>\n<\/td>\n

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$19.02<\/p>\n<\/td>\n

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$30.12<\/p>\n<\/td>\n

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$26.58<\/p>\n<\/td>\n

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$28.43<\/p>\n<\/td>\n

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$31.85<\/p>\n<\/td>\n

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$38.22<\/p>\n<\/td>\n

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$33.97<\/p>\n<\/td>\n<\/tr>\n

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3 Yr EPS CAGR<\/p>\n<\/td>\n

 <\/td>\n <\/td>\n <\/td>\n\n

4.08%<\/p>\n<\/td>\n

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16.09%<\/p>\n<\/td>\n

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10.33%<\/p>\n<\/td>\n

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14.34%<\/p>\n<\/td>\n

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1.88%<\/p>\n<\/td>\n

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12.87%<\/p>\n<\/td>\n

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6.11%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

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