BlackRock Is A Good Bet For The Future
Summary
- BlackRock is off its highs and offers investors a chance to own a world-class company at an attractive price.
- The dividend has been growing and offers an above-average yield for the company's trading history.
- The company will continue to grow and reward investors along the way.
- Buying shares on weakness will serve new investors well.
Shares of BlackRock (NYSE:BLK) have pulled back along with the broader market and particularly financials. Despite an excellent management team and exceptional operating performance, the market has punished the company along with the rest. The company last reported assets under management of $6.47 trillion. A staggering amount. With continued strong execution and operating performance the shares will offer investors attractive returns. With an attractive yield, BlackRock should continue to grow at an attractive rate, offering those looking for income with a stream of cash. While shares have rallied off the lows, any weakness should be met as an opportunity.
Performance
BlackRock has performed well in the most recent quarter which only began to see the effects of the economic shut down at the end. The company beat both the top and bottom lines. 
Source: Seeking Alpha
The company saw revenue growth of 10.7% thanks to heavy growth in both performance fees and technology services. While this is sure to decline in the second quarter, it is good to know the company continues to grow at a healthy pace even with as much under management as it currently has. New inflows also grew by over $64 billion even amid the market decline.
The company has a diversified revenue base across the globe that provide insulation against any single dependent risk from affecting the business.
Source: Earnings Presentation
A notably large amount of the company's fees and AUM are driven from the Americas. This should be viewed as a positive as American markets and investors tend to have a bit more stability and a positive risk/reward ratio with an independent democracy providing as such. Overall the portfolio is well diversified with different products, clients, and styles providing different revenue streams. This helps oftentimes when perhaps one category or segment is under-performing.
Investors should continue to expect strong performance in the coming years as more and more money flows into low-cost ETFs. In the year 2019, one of the largest beneficiaries was the iShares index funds. With 6 out of 10 of the top gainers for inflows, BlackRock clearly leads the pack.
Source: ETF.com
In 2019, ETFs saw one of the highest inflows on record. With continued gains in these low-cost funds, BlackRock will continue to benefit from having some of the most sought-after index funds options.
With a global focus, the company can continue to capture more share of the growing ETF business and leverage that into other products.
Source: BlackRock Presentation
One of these products is known as Aladdin, which is a full-service software solution for asset managers, banks, insurers, and more to have better visibility into asset holdings and possible investment options. Furthermore, the company despite its large growth in recent years is still only the choice for a minority of the number of available customers in the market. There is trillions of market share left to gain even though BlackRock is the leader.
This chart from 2019 shows where the company compares to peers.
Source: Statista
With market-leading positions and growing above average, it is obvious BlackRock continues to be the leader in the space. Picking the best of breed for an investment makes investors feel safer in hard times as they know the company is better-suited to handle any downturn than peers.
Bottom line, the company continues to perform well and shows no sign of slowing down. Should management keep delivering results, there is no reason the recent sell-off would be anything more than unwarranted and offer those purchasing shares a positive return in the long term.
Valuation
The company is trading at a higher valuation relative to its peers, however.
Data by YCharts
Part of this may be due to the superior strength and diversity as well as balance sheet strength BlackRock offers. Usually the leader in the space in which a company operates in will see a premium valuation.
Next, we look at the valuation versus its own history.
Source: Morningstar
The company trades at a more attractive P/B, P/E, P/S and earnings yield than it has in the past 5 years. However, there are some metrics that could change but currently show the shares trade at a premium to its 5-year averages. While I believe the shares deserve a premium, due to current market circumstance and an unpredictable outlook, I would prefer to see a larger discount to its average for a margin of safety. Typically, I look for a discount of 10% to the historical averages before initiating a position.
The company continues to repurchase shares and increase dividends as well. Capital returns are always of positive note for investors and should be valued by those who own shares.
Source: Earnings Presentation
In the most recent report, we found that the company has repurchased 500k shares for $400 million during the first quarter. I am pleasantly surprised to see the company has been reducing purchases while shares were at elevated levels and increasing when lower. The company most recently raised its dividend by 10%. This marks the 16th year in a row the company has raised its dividend. A streak the company can be expected to continue in my opinion. BlackRock is quietly becoming a dividend aristocrat in the making.
Investors should also take note of the current yield.
Source: Yield Chart
With the average yield around 2-2.25%, the current 3% yield has only been offered about 12% of the time in the share's trading history in the past 17 years. Investors buying shares today would be locking in an above-average yield and should be confident the company will continue to grow its payout.
Conclusion
While there is certainly risk in the event of a recession, the company should be able to continue to operate in any short-term downdraft. Traditionally, a recession would lead to outflows in investments and lower AUM due to negative performance. Additionally, the company would recognize potentially lower performance fees at first as it wouldn't adjust to the situation immediately. However, the company is trying to reduce its dependency upon assets under management as the sole revenue generator and offer services as an additional revenue stream.
In the meantime, the company will continue to strengthen its offerings and market share due to being a premium choice for its clients. Investors looking for a best of breed asset manager that sold off in the recent pullback may be wise to consider an investment into BlackRock. It also offers an appealing yield compared to other options and has an attractive growth rate. I expect in the long run BlackRock will become a 4-figure stock and offer solid returns to those who enter today. I will wait for a further pullback to add a position as the recent run-up should see a pause in my opinion rather soon.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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