BlackRock (NYSE:BLK) stock has appreciated considerably since I last covered it, but post-2Q, I think BLK has plenty of upside left given the extensive runway to compound its earnings further. That's a rarity in the declining asset management space, where growth stocks are few and far between. Specifically, I'd single out the iShares franchise as a key differentiator, as it continues to see strong organic growth and has more than offset the fee rate pressure in active equity strategies.
The ~20x fwd non-GAAP earnings multiple may seem pricey for an asset manager, but for a franchise capable of consistently generating >20% returns on tangible equity, while benefiting from secular tailwinds in iShares and Aladdin, BLK's premium multiple strikes me as well-deserved.
Keeping It $100 (Billion)
BLK's quality and diversified model was on full display in 2Q despite a particularly challenging and volatile market environment, as it reached a very impressive $100bn of total inflows. Notably, active equities have been resilient, posting five consecutive quarters of inflows with >$8b in 2Q. Within active management, BLK noted strong performance from single-strategy hedge funds, which should boost the fee outlook at least in the near term. Meanwhile, alternatives also gained traction with >$11b inflows. iShares saw the greatest inflows though, with a record >$57bn of fixed income inflows in 2Q.
Source: 2Q20 Earnings Supplement
2Q Sees Outperformance Across the Top and Bottom Lines
For 2Q20, revenue came in well ahead of expectations at $3.65bn (vs. $3.54bn consensus) on higher performance fees (+75% YoY) and securities lending growth (+40% YoY). The securities lending performance boosted management fee income, though on a blended basis (ex-securities lending), fees were flat YoY at ~15.9bps .
Source: 2Q20 Earnings Supplement
Expenses were also well-managed - G&A was down ~17% YoY, driving adjusted operating margins to 43.7%. Given total revenue rose ~4% and expenses were flat, BLK benefited
