Blackrock's Two Downgrades Are Justified

Tough day for asset manager Blackrock (BLK) with 2 separate downgrades. I don't have a major stake right now since the valuation has been a bit rich and the stock overextended, but we've pulled back from $230s to $210... I'd like to get more at $190 if possible. Hence, I have to agree with this downgrade on valuation - just hard to see much upside from where it's been trading of late. Still an amazing franchise with the best management....you wouldn't know it's a financial company based on it's 6 month chart. [Jan 17: Blackrock Continues to be a Safe Haven in Financials] This is actually one of my favorite buys in the fund since my general thesis is to find a rising tide and just about any boat will do the trick... but buying the right financial has been like walking through a scary neighborhood at 2 AM in the morning and trying to find the right safe house.

• Goldman Sachs and Wachovia analysts downgraded BlackRock Inc. Friday, saying the investment manager's stock price will not likely be able to sustain its recent growth.
• Goldman Sachs analyst Marc Irizarry removed the New York-based company from the firm's "Americas Buy List" and lowered his rating to "Neutral" from "Buy."
• As the stock approaches his $225 price target, Irizarry said its upside price potential is limited. His target implies he expects the stock to rise only about 2 percent above Thursday's $220.39 close.
• Already, BlackRock shares trade at a 40 percent premium to its sector, compared with a 22 percent historical average premium, he said. Shares have risen 39 percent in the past 12 months, compared to a 6 percent drop in the value of the Standard & Poor's 500 index, he noted.
• We think BlackRock has done an excellent job of managing its franchise during the credit crisis," Irizarry said in a note to clients. "However, at these levels we believe the stock's valuation is full."
• Wachovia analyst Douglas Sipkin cut his rating to "Market Perform" from "Outperform" and his 2008 earnings estimate to $9.03 per share from $9.71 per share. Analysts polled by Thomson Financial expect, on average, earnings of $9.23 per share for the period.
• "While performance at BlackRock remains healthy, we doubt that the level of outperformance is sustainable," Sipkin said in a note to clients.
• During the onslaught of the credit crisis, investors moved cash to safer investments at BlackRock, but now may look to increase risk -- and potential profit -- as interest rates fall, by moving cash to riskier bets.

Disclosure Long Blackrock in fund; no personal position