Strong Flows, Market Gains in BlackRock's Q4

We expect to increase our fair value estimate for wide-moat rated BlackRock (BLK) to $960 per share following the company's release of fourth-quarter earnings that were at the upper end of our expectations as well as to adjust for our changing expectations for the U.S. corporate tax rate (which we had been projecting to increase to around 26% as part of the Build Back Better legislation). BlackRock closed out the December quarter with a record $10.010 trillion in managed assets, up 5.8% sequentially and 15.4% on a year-over-year basis. Annualized organic AUM growth of 7.7% during the fourth quarter, and full-year organic growth of 5.7%, was above our long-term annual target range of 3%-5% (and management's own guidance of 5%) as BlackRock generated solid flows from both its active fund and ETF operations.

While average long-term AUM was up 20.7% year over year during the fourth quarter, BlackRock recorded a 16.9% increase in base fee revenue growth as product mix shift (and money market fee waivers) led to a 2.2% decline in the firm's overall realization rate when compared with the prior year's period. Total revenue, meanwhile, was up 14.0% year over year as lower performance fee income was not completely offset by higher distribution, technology, and risk management fees. Top-line growth of 19.6% during 2021 was in line with our forecast 19%-21% range for the full year.

With regards to profitability, BlackRock posted a 30-basis-point increase in adjusted operating margins to 45.2%, leaving it slightly above our projected range of 44%-45% for the full year. Unlike most of the other traditional U.S.-based asset managers we cover, we are projecting an improvement in BlackRock's operating profitability over the next five years, with the firm's adjusted operating margins expected to come in at 45%-47% on average (compared with 44.4% during 2017-21). BlackRock raised its quarterly cash dividend to $4.88 per share, an increase of 18.2% over the prior quarterly dividend.