BlackRock (BLK) is in a slow-growth phase. The mutual fund, bond fund manager, & ETF manager is expected to grow both profits and sales just 2% this year. One reason for the slow growth is there are signs Saudi Arabia is pulling cash from global asset management firms like BlackRock. CNN reports the Saudi central bank has yanked $50 billion to $70 billion during the past six months. That’s a big chunk of outflows, even for a behemoth like BlackRock, and can explain why the company is growing at just 2% right now.
Ten Year Chart
BLK sells for 16x earnings, which I feel is spot on. BlackRock was rapid grower when it went public in 1999 and for many years after I considered it a 20% grower. But now analysts estimate BLK can grow profits 9% a year long-term, in addition to paying a 2.5% or so dividend.
Since asset managers are considered good investments, I think 16x earnings is fair for an estimated 11.5% annual total return. I do want to point out this 11.5% estimated total return is down from 13.5% earlier this year.
Profit History
The trouble is the company is only growing at 2% right now, and qtrly estimates show profits growing an average of 2% the next 4 qtrs. So BLK could be sitting around $320-$340 for another year. BLK closed at $337 yesterday and my 2016 Fair Value is $334.
Also, profits estimates haven’t been rising this year, they’ve been falling some each time the company reports. Qtrly estimates are consistently getting cut leading up to the announcement, then BLK beats the reduced street estimates at the end. This has happened four qtrs in a row. I bet this has to do with Saudi Arabia taking funds back.
Sharek’s Take
BlackRock is one of my favorite companies, as mutual fund companies and asset managers are usually solid investments. But BLK is having trouble growing right now due to the low price of oil in addition to flat stock market year-to-date. BlackRock is also a huge company right now, and it will take a lot of new business to make a dent in profitability. If you have owned BLK for years I think it’s a good investment and you should hold. If not I would look for other attractive places to put your money — perhaps a BlackRock mutual fund or iShare?
View the One Year Chart here. View the Earnings Table here.
