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BlackRock Earnings: Lower Taxes Salvage Weak Flows and Performance

Even with a downward revision, we view the firm’s stock as only modestly undervalued.

A photograph featuring the BlackRock logo seen at its office in San Francisco.

Key Morningstar Metrics for BlackRock

What We Thought of BlackRock’s Earnings

While there was little in BlackRock’s BLK third-quarter earnings that would alter our long-term view of the company, we expect to slightly reduce our fair value estimate of $730.00 per share to reflect weaker flows and market performance than we forecast. Even with this downward revision, we view the shares as only modestly undervalued right now.

BlackRock closed out September 2023 with $9.101 trillion in managed assets, down 3.4% sequentially but up 14.3% year over year and 5.9% since the start of the year. This was below our forecast for $9.338 trillion in assets under management, or AUM. Net long-term outflows of $13 billion during the quarter were below our expectation of $65 billion in positive flows, reflective of annualized organic AUM growth of negative 0.5% (well below our long-term target of 3%-5% and management’s target of 5%).

While average AUM was up 10.8% year over year during the third quarter, BlackRock recorded only a 4.2% increase in base fee revenue growth, as product mix shift and changing fee rates led to a 5.9% decline in the firm’s realization rate. Total revenue was up 4.9% year over year, improved by higher technology services revenue during the period. Year-to-date top-line growth of negative 2.3% was below our full-year forecast of flattish revenue.

BlackRock posted a 110-basis-point year-over-year decline in year-to-date GAAP operating margins to 35.5% due to higher compensation and fund administration costs. On an adjusted basis, year-to-date operating margins were up 30 basis points to 42.3%. Adjusted earnings per share of $10.91 for the September quarter was better than our forecast and the FactSet consensus estimate of $8.50 per share, primarily due to a significantly lower tax rate during the period.

BlackRock Stock Price

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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