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Stock Analyst Update

BlackRock Continues to Impress

Increased volatility and poor equity market performance in the first quarter didn't stop this wide-moat firm from gathering assets.

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There was little in wide-moat-rated  BlackRock's (BLK) first-quarter earnings that would alter our long-term view of the firm. We are leaving our $600 per share fair value estimate in place. BlackRock closed out the March quarter with a record $6.316 trillion in managed assets, up 0.5% sequentially and 16.5% year over year, with positive flows and foreign exchange gains offsetting market losses during the period.

While the firm's net long-term inflows of $54.6 billion during the first quarter did break a trend of five straight quarters with more than $75 billion in net inflows, it was impressive still considering the increased volatility and poor equity market performance during the first quarter. As has been the case, much of the past decade, iShares was the largest driver of BlackRock's inflows, picking up another $34.6 billion in AUM during the period. The firm also saw positive flows from its retail ($16.7 billion) and institutional ($3.3 billion) platforms. BlackRock's organic growth rate of 6.1% over the past four calendar quarters was comfortably above management's annual target rate of 5%, while its annualized rate of 3.7% (based purely on first-quarter results) was more in line with our long-term forecast for 3%-5% organic AUM growth annually.

From a revenue perspective, BlackRock was able to turn 20.8% average long-term AUM growth in the first quarter into 16.8% year-over-year base fee revenue growth, as mix shift and fee compression weighed on results. Total revenue was up 15.9% when compared with the first quarter of 2017, even as technology and risk management revenue increase 19.5% year over year, as the firm was unable to produce as strong of an increase in fees from its other sources of revenue. With regards to profitability, BlackRock reported a 140-basis-point increase in first-quarter operating margins to 38.4% of revenue when compared with the same period in 2017.

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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.