Yahoo Finance BlackRock's (BLK) Restructuring Efforts Aid Amid Cost Woes
BlackRock Inc. BLK is well-poised for top-line growth on the back of its restructuring initiatives and strategic buyouts. A solid liquidity position keeps the robustness of capital distributions intact. However, elevated expenses and geopolitical risks make us apprehensive.
BlackRock has been actively engaged in opportunistic buyouts, domestically as well as overseas to expand its business. This March, the company announced its intention to acquire the remaining 75% stake in SpiderRock to boost its separately managed account offerings. In January, it entered into an agreement to acquire Global Infrastructure Partners (“GIP”). In 2023, BLK acquired Kreos Capital and agreed to form a joint venture with Jio Financial Services Ltd. named Jio BlackRock in an attempt to revolutionize India’s asset management industry.
In 2021, it acquired the Climate Change Scenario Model of Baringa Partners and Investment management services provider, Aperio Group. Besides that, the company has acquired several firms across the globe in order to expand its footprint and gain market share. Given a strong liquidity position, BlackRock is aptly positioned to expand further via strategic buyouts.
BLK’s top-line expansion is expected to continue to be supported by its product diversification, revenue mix and steadily improving asset under management (AUM) balance. Its AUM witnessed a compound annual growth rate (CAGR) of 10.9% over the five years ended 2023. Concurrently, BlackRock’s revenues (on a GAAP basis) experienced a 4.7% CAGR. The company’s efforts to strengthen its iShares and ETF operations, along with its enhanced focus on the active equity business, are likely to support the uptrend going forward. We project total revenues and AUM to witness a CAGR of 13.4% and 5.6%, respectively, over the three years ended 2026.
BlackRock’s capital distribution activities are encouraging. The company hikes dividends on an annual basis. In January 2024, it announced a 2% hike in quarterly dividend. In January 2023, the company authorized the buyback of an additional seven million shares under its ongoing share repurchase program. In 2024, the company intends to repurchase $1.5 billion shares. A solid liquidity position and earnings strength make its capital distribution plans sustainable, thus enhancing shareholders’ value.
However, BLK’s total expenses witnessed a CAGR of 5.8% over the last five years ended 2023, primarily due to higher general and administration (G&A) costs. Amid the company’s expansion efforts, expenses are expected to remain escalated in the near term. Management anticipates core G&A expenses to increase in the low to mid-single-digit percentage range in 2024. We estimate total expenses to witness a 12.6% CAGR by 2026.
Given the geographical diversification and increasing dependence on overseas revenues, BlackRock is exposed to geopolitical and regulatory risks. Roughly 40% of its AUM is managed for clients domiciled outside the United States. Despite one-third of its revenue contribution attributed to overseas markets, a number of cross-border risks such as foreign exchange fluctuations and regional economic performance can negatively impact its top-line expansion.
Currently, BLK carries a Zacks Rank #3 (Hold).
Over the past six months, shares of BlackRock have rallied 29.4%, outperforming the industry’s growth of 27.7%.
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Stocks Worth Considering
Some top-ranked finance stocks are AssetMark Financial Holdings, Inc. AMK and Federated Hermes, Inc. FHI. Each of them sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for AMK’s current year earnings have been revised upward by 3.2% over the past 60 days. The company’s shares have rallied 40.4% in the past six months.
Estimates for FHI’s 2024 earnings have moved 4.9% north in the past 60 days. The stock has risen 4.1% over the past six months.
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