Top Pick BlackRock Posts Positive Flows and Asset Gains in Q4 but Records Lower 2022 Revenue and Profits
We are likely to increase our fair value estimate on BlackRock stock by 5%-10%.
Current Morningstar Fair Value Estimate: $760
Stock Star Rating: 3 Stars
Economic Moat Rating: Wide
Moat Trend Rating: Stable
Wide-moat-rated BlackRock (BLK) reported solid fourth-quarter earnings per share of $8.29, beating the FactSet consensus of $8.08 and our own estimate of $7.84. The majority of the outperformance was driven by higher levels of assets under management, better fees, and some lower expense ratios than we had projected. With the asset manager’s results coming in better than our expectations, we are likely to increase our fair value estimate by 5%-10%.
BlackRock continues to be our top pick among the more traditional U.S.-based asset managers we cover, with the shares expected to trade at a slight discount to our fair value estimate after we make our revisions.BlackRock closed the December quarter with $8.594 trillion in managed assets, up 8.0% sequentially but down 14.1% year over year. This was around $800 billion better than our projections thanks to better flows, currency exchange, and market returns than we forecast for the quarter.
Net inflows of $146 billion into long-term AUM were impressive, considering the ongoing volatility in the equity and credit markets, and better than our forecast for $115.8 billion. Full-year net inflows of $393 billion reflected an annualized organic AUM growth rate of 4.3%, in line with our long-term target of 3%-5% annual growth.With average long-term AUM down 13.7% year over year during the fourth quarter, BlackRock recorded a 14.3% decline in base fee revenue growth, with total revenue down a similar amount year over year (despite a rebound in performance fee income during the December quarter). Full-year top-line growth of negative 7.7% was better that our forecast for a 10% decline. GAAP operating margins declined 700 basis points in the fourth quarter to 32.9% and 280 basis points for the full year to 35.7%. On an adjusted basis, operating margins were 41.2% for the quarter and 42.8% for the year.