BlackRock Earnings: Market Gains Make Up for Weaker Inflows as Firm Hits Record AUM
We expect to slightly increase our fair value estimate of BlackRock stock.
Key Morningstar Metrics for BlackRock
- Fair Value Estimate: $830.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
What We Thought of BlackRock’s Earnings
While there was little in BlackRock’s BLK first-quarter earnings to alter our long-term view of the firm, we expect to slightly increase our fair value estimate of $830 per share to account for revised near-term expectations for assets under management, revenue, and profitability. While the company’s shares trade at a hefty premium relative to other traditional asset managers (which we believe is warranted), they are trading at a nearly 10% discount to our fair value estimate.
BlackRock closed March 2024 with a record $10.473 trillion in AUM, up 4.6% sequentially and 15.2% year over year. Net long-term inflows of $76 billion during the quarter were lower than our expectations for $115 billion, with the firm hit by more low-fee institutional index redemptions and weaker active flows than we forecast. However, this reflected annualized organic AUM growth of 3.3%, at the lower end of our long-term annual target of 3.0%-5.0% but a slight improvement over the 3.0% seen during the fourth quarter of 2023.
While average AUM was up 14.3% year over year during the quarter, BlackRock recorded a 7.9% increase in base fee revenue growth as product mix shift and changing fee rates led to a 5.6% decline in its realization rate. Total revenue was up 11.4% compared with the prior-year quarter. Our full-year forecast continues to call for high-single-digit to double-digit top-line growth.
BlackRock posted a 190-basis-point year-over-year increase in first-quarter GAAP operating margins to 35.8% as expense growth came in lower than top-line growth. On an adjusted basis, operating margins were 42.2%, compared with 40.4% in the year-ago period. Adjusted EPS of $9.81 for the March quarter was better than our forecast of $9.61 and the FactSet consensus estimate of $9.38.
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