BlackRock Rides Stock-Market High

3/7/2011


  Recent Price
$198
  Dividend
$4.00
  Yield
2.0%
  P/E Ratio
19
  Shares (millions)
193
  Long-Term Debt as % of Capital
15%
  52-Week Price Range
$227.77 - $138.42

With a market value of more than $38 billion, BlackRock ($198; BLK) is one of the world's biggest publicly traded investment-management firms. Assets under management exceeded $3.56 trillion at the end of 2010, up 6% from a year earlier. That's more than 10 times the assets BlackRock managed in 2004. Since then, BlackRock has made four significant acquisitions, including the $15 billion purchase of Barclays Global Investors, completed in December 2009.

BlackRock's revenue depends on fees based on assets and performance, making the shares sensitive to the stock market. However, BlackRock's year-ahead outlook is bright for at least three reasons:

• The continued strength of equity markets has increased investors' appetite for risk, which suggests inflows to equity managers could increase.

• The iShares platform of exchange-traded funds, acquired in the Barclays deal, positions BlackRock to benefit from the rising popularity of ETFs.

• The shares trade at 19 times trailing earnings, slightly above the peer-group average (BlackRock has historically commanded a larger premium) and 28% below the company's three-year average P/E ratio.

BlackRock, yielding 2.0%, is a Buy and a Long-Term Buy.

Business breakdown

Revenue jumped 86% in 2010, while per-share profits advanced 73% to $10.55. Results reflect the Barclays acquisition, along with strong growth in both base fees and performance fees, driven by favorable conditions in equity markets.

Investment performance grew the asset base by $132.1 billion, and BlackRock brought on board $23.9 billion in net new business in the December quarter. However, the company had net outflows, as $38.7 billion in assets left in the wake of the Barclays merger. Such outflows are not unusual after mergers, as investors with assets at both companies may find themselves with an uncomfortably large account under one roof.

Equity products represent 48% of total assets under management, followed by fixed income (32%), cash equivalents (8%), multi-asset class products (5%), advisory assets (4%), and alternative investments (3%).

The wealth-management unit works with individual investors. BlackRock Solutions, launched in 2000, provides institutional investors with risk-management services.

The market's rally could encourage investors to shed risk-averse attitudes and shift more money into equities and alternative assets, which tend to generate higher management fees. BlackRock values its pipeline for new business at $72.7 billion, up 58% from October and 91% from a year ago.

Conclusion

The visibility of BlackRock shares would get a boost if the company joins the S&P 500 Index. In November, Bank of America ($14; BAC) and PNC Financial Services ($62; PNC) sold nearly 59 million BlackRock shares (roughly 31% of outstanding shares). That lifted the free float ratio (proportion of shares available for trading) above 50%, a prerequisite for inclusion in the index. An annual report for BlackRock Inc. is available at 55 E. 52nd St., New York, NY 10055; (212) 810-5596; www.blackrock.com.

 

BLACKROCK
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '10
3.35
vs.
1.62
+ 61%
193.74
-
161.53
22 - 18
Sep '10
2.83
vs.
2.27
+ 84%
172.87
-
138.42
21 - 17
Jun '10
2.21
vs.
1.59
+ 97%
212.27
-
143.01
28 - 19
Mar '10
2.17
vs.
0.62
+ 102%
243.80
-
200.56
40 - 33
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
8.61
10.55
4.00
243.80
-
138.42
23 - 13
2009
4.70
6.11
3.12
241.66
-
88.91
40 - 15
2008
5.06
5.91
3.12
249.37
-
94.78
42 - 16
2007
4.84
8.16
2.68
224.54
-
139.20
28 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
95
65
91
87
91
59

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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