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BlackRock's (BLK) Expansion Efforts & AUM Aid Amid Cost Woes
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BlackRock Inc. (BLK - Free Report) remains well-positioned for growth on the back of strategic expansion efforts and solid assets under management (AUM). Impressive capital distributions are another positive. However, higher expenses, alongside reliance on overseas revenues, are headwinds.
BlackRock has been expanding majorly through acquisitions in both domestic and foreign markets. In May 2024, the company acquired the remaining 75% stake in SpiderRock to augment its separately managed accounts offerings. The company agreed to acquire Global Infrastructure Partners this January. Further, in 2023, it acquired Kreos Capital and formed a strategic joint venture with Jio Financial Services Limited, Jio BlackRock. Apart from these, the company has acquired several firms across the globe, which has expanded its footprint and deepened its market share. A strong liquidity position will likely enable the company to pursue opportunistic buyouts going forward.
BlackRock’s diversified offerings, revenue mix and consistently improving AUM balance will likely aid the top-line expansion. An inorganic growth strategy has driven the company’s AUM growth. AUM witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 10.9%. Concurrently, the company’s revenues (on a GAAP basis) witnessed a CAGR of 4.7%. The momentum persisted for both metrics in the first quarter of 2024 as well. This growth will likely continue due to the company’s initiatives to strengthen iShares and ETF operations (it received approval for spot bitcoin ETF) and enhanced focus on the active equity business. We estimate total revenues to witness 10.2%, 12.2% and 19% rise in 2024, 2025 and 2026, respectively. Further, we project total AUM to reflect a 7.1% CAGR by 2026.
BLK’s capital distribution activities remain encouraging. The company has been hiking dividends annually. This January, it announced a 2% increase in quarterly dividend. In January 2023, the company’s board of directors authorized the repurchase of an additional seven million shares under its existing share repurchase plan. As of Mar 31, 2024, 5.3 million shares remained available under the authorization. This year, the company aims to buy back a total of $1.5 billion worth of shares. Driven by earnings strength and solid liquidity position, BLK is likely to sustain efficient capital distributions in the future, thereby enhancing shareholder value.
Nonetheless, BLK has been experiencing a consistent rise in operating expenses. Total expenses witnessed a CAGR of 5.8% over the last five years ended 2023, primarily driven by higher general and administration (G&A) costs. The uptrend continued in the first quarter of 2024. Overall costs are likely to remain elevated in the near term. Management anticipates core G&A expenses to rise in the low to mid-single-digit percentage range in 2024. We project total expenses to rise 8.9%, 13.7% and 17.1% in 2024, 2025 and 2026, respectively.
BlackRock is a global organization with a presence in roughly all the major markets. Its dependence on overseas revenues has been gradually rising over the last few years with approximately 40% of the total AUM managed for clients domiciled outside the United States. Increasing reliance on overseas revenues exposes the company to regulatory and political risks, foreign exchange fluctuations, and underperformance of the region, which could adversely impact top-line growth.
BlackRock currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have lost 1.8% against the industry’s growth of 8.5%.
The Zacks Consensus Estimate for BAC’s current-year earnings has been revised marginally upward in the past 30 days. The company’s shares have gained 18.1% over the past six months.
The Zacks Consensus Estimate for BKU’s current-year earnings has been revised 2.2% north in the past 30 days. The company’s shares have plunged 13.1% over the past six months.
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BlackRock's (BLK) Expansion Efforts & AUM Aid Amid Cost Woes
BlackRock Inc. (BLK - Free Report) remains well-positioned for growth on the back of strategic expansion efforts and solid assets under management (AUM). Impressive capital distributions are another positive. However, higher expenses, alongside reliance on overseas revenues, are headwinds.
BlackRock has been expanding majorly through acquisitions in both domestic and foreign markets. In May 2024, the company acquired the remaining 75% stake in SpiderRock to augment its separately managed accounts offerings. The company agreed to acquire Global Infrastructure Partners this January. Further, in 2023, it acquired Kreos Capital and formed a strategic joint venture with Jio Financial Services Limited, Jio BlackRock. Apart from these, the company has acquired several firms across the globe, which has expanded its footprint and deepened its market share. A strong liquidity position will likely enable the company to pursue opportunistic buyouts going forward.
BlackRock’s diversified offerings, revenue mix and consistently improving AUM balance will likely aid the top-line expansion. An inorganic growth strategy has driven the company’s AUM growth. AUM witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 10.9%. Concurrently, the company’s revenues (on a GAAP basis) witnessed a CAGR of 4.7%. The momentum persisted for both metrics in the first quarter of 2024 as well. This growth will likely continue due to the company’s initiatives to strengthen iShares and ETF operations (it received approval for spot bitcoin ETF) and enhanced focus on the active equity business. We estimate total revenues to witness 10.2%, 12.2% and 19% rise in 2024, 2025 and 2026, respectively. Further, we project total AUM to reflect a 7.1% CAGR by 2026.
BLK’s capital distribution activities remain encouraging. The company has been hiking dividends annually. This January, it announced a 2% increase in quarterly dividend. In January 2023, the company’s board of directors authorized the repurchase of an additional seven million shares under its existing share repurchase plan. As of Mar 31, 2024, 5.3 million shares remained available under the authorization. This year, the company aims to buy back a total of $1.5 billion worth of shares. Driven by earnings strength and solid liquidity position, BLK is likely to sustain efficient capital distributions in the future, thereby enhancing shareholder value.
Nonetheless, BLK has been experiencing a consistent rise in operating expenses. Total expenses witnessed a CAGR of 5.8% over the last five years ended 2023, primarily driven by higher general and administration (G&A) costs. The uptrend continued in the first quarter of 2024. Overall costs are likely to remain elevated in the near term. Management anticipates core G&A expenses to rise in the low to mid-single-digit percentage range in 2024. We project total expenses to rise 8.9%, 13.7% and 17.1% in 2024, 2025 and 2026, respectively.
BlackRock is a global organization with a presence in roughly all the major markets. Its dependence on overseas revenues has been gradually rising over the last few years with approximately 40% of the total AUM managed for clients domiciled outside the United States. Increasing reliance on overseas revenues exposes the company to regulatory and political risks, foreign exchange fluctuations, and underperformance of the region, which could adversely impact top-line growth.
BlackRock currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have lost 1.8% against the industry’s growth of 8.5%.
Image Source: Zacks Investment Research
Financial Services Stocks Worth Considering
Some better-ranked financial services stocks worth a look are Bank of America Corporation (BAC - Free Report) and BankUnited, Inc. (BKU - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
The Zacks Consensus Estimate for BAC’s current-year earnings has been revised marginally upward in the past 30 days. The company’s shares have gained 18.1% over the past six months.
The Zacks Consensus Estimate for BKU’s current-year earnings has been revised 2.2% north in the past 30 days. The company’s shares have plunged 13.1% over the past six months.