BLK: What’s Next for BlackRock Stock?

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BlackRock (BLK) couldn’t have picked a worse day to announce its standout third quarter.

BlackRock185BLK reported capital inflows of $28.7 billion, lifting all boats at the investment management firm, including overall assets under management as well as top- and bottom-line performance. The lion’s share of capital inflows among retail investors were directed toward the fixed-income category, where troubled rival Pimco has been experiencing severe outflows amid a management shakeup.

However, BlackRock — which boasts $4.5 trillion in assets under management — still saw its shares dip about 1% amid a heavily battered broader market Wednesday, continuing a humdrum year for BLK stock.

Consider it a blessing in disguise. With a multiyear opportunity for BlackRock to grow its market share in bond funds, and with capital flowing in the right direction, there are clear catalysts that could drive BlackRock stock higher going forward.

BlackRock Earnings

As noted, net long-term inflows — a closely watched metric for asset managers — were $28.7 billion in the quarter, helping to drive overall AUM higher by 10 percent amid a critically volatile market environment.

As assets climbed higher on a year-over-year basis, so too did the investment advisory and performance fees that BlackRock collected, leading to a 15% increase in revenue to about $2.8 billion vs. the year-ago period. Adjusted earnings per share of $5.21 jumped 34% year-over-year, handily beating last year’s results of $3.88 and topping Bloomberg-surveyed analyst estimates of $4.66.

Despite the year-over-year outperformance, BlackRock continues to face headwinds in the form of market volatility, evidenced by the 2% decline in assets on a sequential basis from close to $4.6 trillion in AUM in the second quarter.

And if Wednesday’s market activity was any indication, that volatility won’t be abating any time soon.

Is BlackRock the New King?

While Bill Gross’ abrupt exit from Pimco left that bond firm scrambling as investors withdrew billions of dollars from its U.S. funds last month, it also created a market-share grab among rivals — one that BlackRock executives anticipate will continue to unfold over the next several years as institutional investors adjust their asset allocations.

Incidentally, BlackRock is uniquely positioned to capitalize on this opportunity as a result of a decision six years ago to ramp up its bond-advisory business, leading fixed income to comprise more than 30% of its total product portfolio.

In hindsight, that move couldn’t have come at a better time.

The approach seems to be winning, evidenced by the $5.4 billion that BlackRock attracted into its fixed-income products during Q3. Inflows were led by $4 billion-plus into its Strategic Income Opportunities and Fixed Income Global Opportunities portfolios. That momentum, Fink said in the earnings release, has extended into the current quarter, offering shareholders reason for optimism.

Gaining share at the expense of its rivals isn’t BlackRock’s only tailwind, either. Investors have kept trillions of dollars sidelined in the wake of the financial crisis but are beginning to warm to the idea of allocating those assets to the financial markets once again, according to a recent interview between a key BlackRock executive and Bloomberg.

This bodes well for BlackRock, whose funds run the gamut from traditional to alternative investment funds managed in both active and index-based styles. BlackRock is confident that it will be a beneficiary of greater investor confidence, evidenced by its target for 5% organic growth in assets under management. (Organic growth in AUM was 3% in 2013, flat in 2012 and 1% in 2011.)

Rock Star?

While retail and institutional investors alike have demonstrated confidence in BlackRock’s ability to manage their money, the market is not exerting that same optimism for BLK shares. BlackRock stock performance has lagged the market, and it trades a forward price-to-earnings ratio of only 16.

This despite the fact that BlackRock management has made shareholder value a priority, evidenced by its commitment for $250 million in quarterly share buybacks and a dividend yield of 2.5% that is a function of a 44% payout ratio.

The current market volatility not withstanding, BLK shareholders have reason to be bullish in light of the market-share opportunity resulting from skittish investors returning to the markets and the Pimco fallout.

Bottom Line

BlackRock might never be a high-flying, high-growth stock, but in the world of asset management, it’s a stable firm with top-notch veteran management and more than a quarter of a century of experience under its belt. Apart from the macroeconomic headwinds, BLK appears to be managing its ship just fine with no apparent internal rumblings that could threaten to disrupt its leadership position.

If you are considering the financial sector for a secure, long-term investment, BlackRock stock is one of the best and happens to possess upside potential for the near future.

As of this writing, Gerelyn Terzo did not hold a position in any of the aforementioned securities. 

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/blackrock-stock-blk-earnings/.

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