BLK - Embedded Expectations Analysis - 2020 10 30
BlackRock, Inc. (BLK:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with an 19.4x Uniform P/E. At these levels, the market has expectations for profitability to remain stable. Although management's concerns about their ability to generate alpha, ESG focus, and macro headwinds suggest the potential for near-term headwinds, longer-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to continue generating alpha for clients and provide clients with global insights. In addition, they may have concerns about the impact of macro headwinds on client portfolios, the sustainability of client inflows, and their ability to conduct large scale integrations. Moreover, management may lack confidence in their ability to widen their alternative product offerings, expand Aladdin's capabilities, and grow their annualized effective fee rate. Furthermore, they may be exaggerating their focus on ESG portfolio construction and their business model's resilience
Although management's concerns about their ability to generate alpha, ESG focus, and macro headwinds suggest the potential for near-term headwinds, market expectations are far too bearish given the firm's best-in-class positioning, suggesting longer-term equity upside remains warranted for BLK
BlackRock is an investment management firm. The company provides a range of investment and technology services to institutional and retail clients worldwide. Products are provided directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares? exchange-traded funds, separate accounts, collective investment trusts and other pooled investment vehicles. The company also provides technology services, including the investment and risk management technology platform, Aladdin?, Aladdin Wealth, eFront, Cachematrix and FutureAdvisor, as well as advisory services and solutions to a base of institutional and wealth management clients.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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