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BlackRock Earnings: Robust Inflows and Market Gains Offset by Fee Compression and Higher Costs

We expect to leave our $810 per share fair value estimate in place.

A photo of BlackRock's office building.
Securities In This Article
BlackRock Inc
(BLK)

BlackRock Stock at a Glance

  • Fair Value Estimate (USD): 810.00
  • Star Rating: 4 Stars
  • Uncertainty Rating: High
  • Economic Moat: Wide

BlackRock Earnings Update

There was little in BlackRock’s BLK first-quarter earnings that would alter our long-term view. We expect to leave our $810 per share fair value estimate and wide moat rating in place. While the firm’s shares trade at a hefty premium relative to the other traditional asset managers (which we feel is warranted), they are currently trading at a 20% discount to our fair value estimate.

BlackRock closed out March 2023 with $9.090 trillion in managed assets, up 5.8% sequentially but down 5.0% on a year-over-year basis. Net long-term inflows of $103 billion during the quarter were slightly lower than our expectations for $107 billion but still reflective of annualized organic assets under management, or AUM, growth of 5.2% (just outside the upper end of our long-term annual organic AUM growth target of 3%-5%). More importantly, BlackRock continues to see positive organic AUM growth from its higher fee-earning active fund platform, which provides an offset to ongoing fee compression.

While average AUM was down 7.9% year over year during the first quarter, BlackRock recorded an 8.6% decline in base fee revenue growth as product mix shift and changing fee rates led to a 3.0% decline in its realization rate. Total revenue was down 9.7% compared with the prior year’s quarter, as weaker distribution fee income compounded the decline in asset-based fees. Our full-year forecast continues to call for positive low- to mid-single-digit top-line growth during 2023.

As for profitability, BlackRock posted a 365-basis-point year-over-year decline in first-quarter GAAP operating margins to 33.9% due to higher compensation and administration costs. On an adjusted basis, operating margins were 40.4%. We still see BlackRock generating adjusted operating margins in a 41%-45% range over the next five years, compared with 44.5% on average during 2018-22. Adjusted earnings per share of $7.93 for the March quarter were better than our forecast for $7.82 and the FactSet consensus estimate of $7.78.

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, CFA

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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