Stock March Madness – Who you got?

Stocks will be hanging onto Jay Powell’s every word and every breath on Wednesday (Mar. 17) and scrutinize his thoughts on interest rates and inflation.

Pretty much, we’re the Fed’s hostages until this thing gets some clarity. Even if Powell says nothing, the markets will move. That’s just how it’s going to work.

Rick Rieder, BlackRock’s CIO for global fixed income, echoed this statement. “I think the last press conference, I think I watched with one eye and listened with one ear. This one I’m going to be tuned in to every word and the markets are going to be tuned in to every word. If he says nothing, it will move markets. If he says a lot, it will move markets.”

Jay Powell is the biggest market mover in the game now. What’s coronavirus anymore?

So far, it’s been a relatively tame week for the indices. The Nasdaq’s continued playing catch-up and has outperformed, while the Dow and S&P are still hovering around record highs.

The wheels are in motion for pent-up consumer spending and a strong stock rally. Plus, we have that $1.9 trillion stimulus package heating up the economy and an army of retail traders with an extra $1,400 to play with.

Inflation fears and surging bond yields are still a concern and have caused significant volatility for growth stocks. But let’s have a little perspective here. Plus, jobless claims beat estimates again and came in at 712,000. This is nearly the lowest they’ve been in a whole year. Last week’s inflation data also came in more tamer than expected.

But bonds yields still remain the market’s biggest wild card. Yes, yields are still at a historically low level, and the Fed Funds Rate remains 0%. But depending on how things go around 2 pm Wednesday (Mar. 17), yields could potentially pop again, reinvigorating the rotation into value and cyclical plays and out of tech and growth plays.

Time will tell what happens.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

There is optimism but signs of concern. The market has to figure itself out. A further downturn is possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen any time soon.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

 Russell 2000- Lessons Learned

Figure 1- iShares Russell 2000 ETF (IWM)

The Russell 2000 was the biggest laggard on Tuesday (Mar. 16). I think I’m starting to figure this index out, though, for a solid entry point.

I have been kicking myself for not calling BUY on the Russell after seeing a minor downturn when the markets got rocked in the second half of February. I may have broken my own rule about “not timing the market” also. I’ve wanted to buy the Russell 2000 badly forever but never thought it dipped hard enough (whenever it did). I was waiting for it to at least approach a correction.

But I think I figured out a pattern now. Notice what happened with the Russell almost every time it touched or minorly declined below its 50-day moving average. It reversed. Look at the above chart. Excluding the large crash and subsequent recovery in late-March and April 2020, 5 out of the last 6 times the Russell did this with its 50-day, it saw a sharp reversal. The only time it didn’t was in October 2020, when the distance between its 50-day and its 200-day moving average was a lot more narrow.

Now, look at the index. As tracked by iShares Russell 2000 ETF (IWM) , its rally since November and year-to-date have been mind-blowing. Pretty much, this is the one reason why I’m more cautious about buying the index.

Since the market’s close on October 30, the IWM has gained about 51.04% and more than doubled ETFs’ returns tracking the more major indices.

Not to mention, year-to-date, it’s already up 19.12% and around at an all-time high.

With that $1.9 trillion stimulus package set to greatly benefit small businesses, the Russell 2000 could pop even more.

Unfortunately, I’m keeping this a HOLD. But I am monitoring the Russell 2000 closely.

Aggressive stimulus, friendly policies, and a reopening world bode well for small-caps in 2021. I think this is something you have to consider for the Russell 2000 and maybe overpay for. The next time the index approaches its 50-day moving average, I will be a little more aggressive.

For more of my thoughts on the market, such as tech, if small-caps are buyable, inflation, and emerging market opportunities, sign up for my premium analysis today.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Asset Manager BlackRock’s Earnings Beat Wall Street Estimates; Target Price $890

The world’s largest asset manager BlackRock reported better-than-expected earnings in the fourth quarter with 11% increase in full-year revenue reflecting strong organic growth, record performance fees and 17% growth in technology services revenue.

The New York-based multinational investment management corporation reported net income of $10.18 per share, beating the Wall Street estimate of $9.17.

“The EPS beat reflected a combination of better than expected revenues across most segments (led by perf fees), as well as several favourable below the line items. Adj op income came in +$92M vs our est. Long-term flows of +$116.2B were in line with our estimate with solid contributions from most active segments. The base fee rate declined 0.15 bps q/q, mostly due to lower sec lending and MM fee waivers,” said Daniel T. Fannon, equity analyst at Jefferies.

“This is the second quarter in a row of solid revenues, with a record annualized base fee growth of +13% in the period. The trends inflows remain broad-based and dominated by strength across the active segments as well as in iShares. The biggest positive on the quarter is the continued positive contribution from Active Equity and Active Fixed Income flows.”

However, upbeat earnings did not help BlackRock’s shares, which traded 3% lower at $756.04 on Thursday. The stock rose more than 40% in 2020.

BlackRock Stock Price Forecast

Six analysts who offered stock ratings for BlackRock in the last three months forecast the average price in 12 months at $791.33 with a high forecast of $890.00 and a low forecast of $602.00.

The average price target represents a 4.12% increase from the last price of $760.00. From those six analysts, five rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $890 with a high of $1,338 under a bull scenario and $413 under the worst-case scenario. The firm currently has an “Overweight” rating on the investment manager’s stock.

Several other analysts have also recently commented on the stock. ValuEngine lowered shares of BlackRock from a hold rating to a sell rating. BMO Capital Markets upped their price objective to $602 from $594 and gave the company a market perform rating. Deutsche Bank upped their price objective to $802 from $795 and gave the company a buy rating.

In addition, Wells Fargo & Company upped their price objective to $805 from $700 and gave the company an overweight rating. At last, Citigroup upped their price objective to $800 from $690 and gave the company a buy rating.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 14% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect the premium to widen as BLK takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

Upside and Downside Risks

Risks to Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Risks to Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

Other major banks will report their quarterly earnings on Friday.

Check out FX Empire’s earnings calendar

Morgan Stanley Raises BlackRock’s Target Price to $890 Ahead of Earnings; Forecasts Q4 EPS of $8.89

Morgan Stanley raised their stock price forecast of the world’s largest asset manager BlackRock to $890 from $750 and said supportive financial market backdrop and improving flows trajectory lift fund NAVs and should continue to lead broad-based upward estimate revisions.

BlackRock to report its fourth-quarter 2020 earnings on Thursday, January 14, where the global investment manager is expected to report a profit of $8.66 per share, which represents a year-over-year change of more than +3%, with revenues forecast to grow over 7% year-over-year to $4.27 billion. Morgan Stanley gave a forecast of $8.89 per share.

“For BlackRock (BLK), our estimates are +3% above cons EPS / +2% above cons operating income for the quarter, and see prospects for BLK to surprise on better flows and particularly, flows into higher fee categories that should support organic base fee growth and overall fee rate leading to prospects for upward estimate revisions,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“We’re looking for +6.8% organic growth in 4Q, which is +200bps above consensus of +4.8% org growth. A resurgence in equity ETFs inflows, continued strength in active equities and momentum of ESG flows could be supportive to both flows and fee rate.”

Morgan Stanley gave a base target price of $890 with a high of $1,338 under a bull scenario and $413 under the worst-case scenario. The firm currently has an “Overweight” rating on the asset manager’s stock.

Other equity analysts also recently updated their stock outlook. Jefferies raised the target price to $868 from $816. JP Morgan upped their stock price forecast to $793 from $707. Deutsche bank increased price objective to $835 from $802.

In addition, Citigroup raised their target price on shares of BlackRock to $800 from $690 and gave the company a “buy” rating. Wells Fargo raised their target price to $805 from $700 and gave the company an “overweight” rating.

Nine analysts who offered stock ratings for BlackRock in the last three months forecast the average price in 12 months at $755.00 with a high forecast of $835.00 and a low forecast of $602.00. The average price target represents a -0.19% decrease from the last price of $756.45. From those nine equity analysts, eight rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

BlackRock’s shares closed about 1% higher at $756.45 on Friday; however, the stock rose more than 40% in 2020.

“We believe BlackRock is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% average long-term organic growth & continued op margin expansion. We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US,” Morgan Stanley’s Cyprys added.

“We expect the premium to widen as BlackRock takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Delta Airlines, BlackRock, Citigroup and Wells Fargo in Focus

Earnings Calendar For The Week Of January 11

Monday (January 11)

IN THE SPOTLIGHT: SYNNEX, CARNIVAL

SYNNEX: California-based business process services company’s earnings to decline to $2.89​ per share the fourth quarter, down from $4.26 per share reported the same quarter last year. The leading provider of business-to-business information technology services’ quarterly revenue will fall more than 5% to just over $6 billion from $ 6.58 billion a year ago.

“For the fourth quarter of fiscal 2020, revenues are expected between $6.45 billion and $6.65 billion. Non-GAAP net income is estimated in the range of $190.5 to $203.5 million. Moreover, the company projects non-GAAP earnings between $3.68 and $3.93 per share,” noted analysts at ZACKS Research.

CARNIVAL: The world’s largest cruise ship operator is expected to report a loss for the third consecutive time in the fourth quarter. The Miami, Florida-based company’s revenue will plunge ​nearly 100% to $142.09 million from $4.78 billion posted in the same period a year ago. Carnival is expected to report a loss of $1.83 per share, worse compared to a profit of 62 cents per share registered in the same quarter last year.

“We think the cruise industry will be one of the slowest sub-sectors to recover from the COVID-19. Cruising needs just not international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” said Jamie Rollo, equity analyst at Morgan Stanley.

“We expect cruising to resume in January 2021, and only expect FY19 EBITDA to return in FY24 given historically CCL has lacked pricing power, and EPS to take even longer given dilution of share issues and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 4-5x even in FY23-24e, so we see risk more equity might need to be raised,” Rollo added.

According to the mean Refinitiv estimate from eleven analysts, Carnival Corp is expected to show a decrease in its fourth-quarter earnings to -186 cents per share. Wall Street expects results to range from a loss of $-2.10 to ​a loss of $-1.64 per share, Reuters reported.

Tuesday (January 12)

No major earnings scheduled for release.

Wednesday (January 13)

Ticker Company EPS Forecast
INFY Infosys $0.16
WIT Wipro $0.06
SJR Shaw Communications USA $0.24
INFO IHS Markit Ltd $0.67
AONNY Aeon ADR -$0.11

 

Thursday (January 14)

IN THE SPOTLIGHT: DELTA AIRLINES, BLACKROCK

DELTA AIRLINES: The Airline company which provides scheduled air transportation for passengers and cargo throughout the United States and across the world is expected to report a loss for the fourth consecutive time of -$2.47 in last quarter of 2020 as the airlines continue to be negatively impacted by the ongoing COVID-19 pandemic. According to Ticket Report, analysts expect Delta Airlines to post $-11 EPS for the current fiscal year and $0 EPS for the next fiscal year.

“Delta is the airline most exposed to corporate travel, which was positive pre-pandemic. Corporate travel remains down 85% and the only corporate traveller flying now appears to be those at small and medium-sized businesses. Delta had hoped for a recovery in business travel in 2H21, but it is becoming increasingly clear that business travel will not be a meaningful contributor to revenue in 2021 as vaccination timelines continue to shift out,” said Helane Becker, equity analyst at Cowen and company.

BLACKROCK: The world’s largest asset manager is expected to report a profit of $8.66 in the fourth quarter, which represents a year-over-year change of more than +3%, with revenues forecast to grow over 7% year-over-year to $4.27 billion.

“We believe BlackRock is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% average long-term organic growth & continued op margin expansion. We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We expect the premium to widen as BlackRock takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 14

Ticker Company EPS Forecast
DAL Delta Air Lines -$2.47
BLK BlackRock $8.66
TSM Taiwan Semiconductor Mfg $0.94
FRC First Republic Bank $1.52
PRGS Progress Software $0.78

 

Friday (January 15)

IN THE SPOTLIGHT: CITIGROUP, WELLS FARGO

CITIGROUP: New York-based diversified financial services holding company is expected to report a profit of $1.30 in the fourth quarter, which represents a year-over-year slump of more than 30%, with revenues forecast to decline about 10% year-over-year to $16.5 billion.

Citi is trading at just 0.7x NTM BVPS implying a through the cycle ROE of just 7%, well below our 9% estimate for 2023. While there is uncertainty around how much Citi needs to invest in technology to address the Fed and OCC consent orders around risk management, data governance and controls, we believe the stock is cheap even if expenses remain elevated. We have modelled in expenses rising to $44B for 2021 and 2022 well above $42B in 2019,” noted Betsy Graseck, equity analyst at Morgan Stanley.

“Moreover, Citi is not getting credit for its diversification (only 40% of total loans are consumer and only half of those are credit card). Citi also has a more resilient wholesale business, skewed to FX, EM and cash management.”

WELLS FARGO: The multinational financial services company is expected to report a profit of $0.58 in the fourth quarter, which represents a year-over-year slump of more than 30%, with revenues forecast to decline about 9% year-over-year to $18 billion. Seaport Global Securities also issued estimates for Wells Fargo & Company’s Q2 2021 earnings at $0.60 EPS and FY2022 earnings at $3.10 EPS.

“Net interest income is anticipated to be $40 billion for 2020, lower than the previous guidance due to lower commercial loan balances and higher MBS premium amortization. Management expects fourth-quarter origination volume to be similar to third-quarter levels despite typical seasonal declines and fourth-quarter production margins should remain strong,” noted analysts at ZACKS Research.

“The company expects internal loan portfolio credit ratings, which were also contemplated in the development of allowance, will result in higher risk-weighted assets under the advanced approach and under the standardized approach in the coming quarters, which would reduce CET1 ratio and other RWA-based capital ratios.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 15

Ticker Company EPS Forecast
VFC VF $0.90
JPM JPMorgan Chase $2.56
C Citigroup $1.30
WFC Wells Fargo $0.58
PNC PNC $2.59
HDB Hdfc Bank $0.54

 

BlackRock to Acquire Investment Management Services Provider Aperio for $1.05 Billion

BlackRock Inc, the world’s largest investment management firm, said it will acquire an investment management services provider Aperio from Golden Gate Capital and Aperio employees for $1.05 billion in cash.

BlackRock’s acquisition of Aperio will be funded from existing corporate liquidity and is anticipated to close in the first quarter of 2021. Although minimally dilutive to earnings per share, the transaction is not expected to be dilutive on a cash basis, the company said in the statement.

The deal will boost BlackRock’s separately managed account (SMA) assets by roughly 30% to over $160 billion.

“While modestly dilutive on a GAAP basis in the year one, the purchase provides valuable scale to BlackRock’s (BLK) customized SMA business. Aperio’s track record in ESG investing also compliments BLK’s increased focus and success in this area. BLK intends to keep Aperio as a standalone unit,” said Daniel T. Fannon, equity analyst at Jefferies.

BlackRock shares closed 1.51% higher at $682.87 on Monday; the stock is up over 35% so far this year.

Executive Comments

“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalization. BlackRock and Aperio, working together, will bring unmatched capabilities to meet these objectives,” said Martin Small, head of BlackRock’s U.S. Wealth Advisory business.

“The combination will bring institutional quality, personalized portfolios to ultra-high net worth advisors and will create one of the most compelling client opportunities in the investment management industry today.”

BlackRock Stores Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $719.14 with a high forecast of $800.00 and a low forecast of $602.00. The average price target represents a 5.31% increase from the last price of $682.87. From those eight analysts, seven rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $750 with a high of $1,140 under a bull-case scenario and $339 under the worst-case scenario. The firm currently has an “Overweight” rating on the asset manager’s stock.

Several other analysts have also upgraded their stock outlook. BlackRock had its price target raised by Deutsche Bank to $795 from $685. Deutsche Bank currently has a buy rating on the asset manager’s stock. Barclays lifted their price target on BlackRock to $700 from $625. Wells Fargo reaffirmed a buy rating on shares of BlackRock.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect a premium to widen as BLK takes a share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” Cyprys added.

Upside and Downside Risks

Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

BlackRock Shares Surge on Better-Than-Expected Q3 Earnings; Target Price $665

BlackRock Inc, the world’s largest investment management firm, reported a better-than-expected profit in the third quarter as the recovery in financial markets boosted its asset value to $7.81 trillion, sending its shares up about 4% on Tuesday.

The global investment manager said its net income rose 27% to $1.42 billion, or $9.22 per share, in the third quarter, from $1.12 billion, or $7.15 per share, a year earlier. Analysts had expected earnings of $7.80 per share, according to IBES data from Refinitiv, Reuters reported.

“BlackRock’s strong 3Q20 results were underscored by an impressive performance fee beat and resilient organic growth across fixed income, active equities, and alternatives. We have accordingly increased our estimates to reflect slightly higher AUM levels and increased performance fees. Momentum across the business appears strong with positive growth coming from all regions and asset classes,” said Daniel T. Fannon, equity analyst at Jefferies.

“We are increasing our 4Q20 EPS to $8.71from $8.27 and, thus, our 2020 EPS to $32.35 from $30.37. This is primarily a result of a stronger revenue (increasing 2020 from $13,656M to $14,197M) as EOP AUM came in slightly higher than expected, and we also modestly raised our performance fee outlook for 4Q20,” Fannon added.

The New York-based company reported a net inflow of $129 billion in the third quarter, up from $100 billion in the prior quarter. More than half of BlackRock’s long-term inflows were driven by clients in Europe and Asia.

Following this release, BlackRock’s shares closed 3.91% higher at $638.96 on Tuesday; the stock is up about 30% so far this year.

Executive comments

“BlackRock generated $129 billion of total net inflows in the third quarter, representing 9% annualized organic base fee growth. Our diverse platform saw inflows across all asset classes, investment styles and regions. Notably, more than 50% of long-term flows were driven by clients in Europe and Asia,” said Laurence D. Fink, Chairman and CEO at BlackRock.

“Our results are a validation of our globally integrated asset management and technology business model, which allows us to consistently invest and evolve ahead of client needs. Each of our strategic investment areas, including iShares ETFs, alternatives and technology, continue to grow, while strong investment performance has driven positive active flows over the last year.”

BlackRock stock forecast

Ten analysts forecast the average price in 12 months at $664.89 with a high forecast of $707.00 and a low forecast of $620.00. The average price target represents a 4.06% increase from the last price of $638.96. From those ten equity analysts, nine rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $750 with a high of $1,140 under a bull scenario and $339 under the worst-case scenario. KBW raised their target price on BlackRock to $654 from $635; Jefferies upped their stock price forecast to $727 from $663; Evercore ISI raised their target price to $705 from $675.

Other equity analysts also recently updated their stock outlook. Credit Suisse increased their price objective to $702 from $682; JP Morgan raised the target price to $707 from $662; UBS upped their stock price forecast to $680 from $645; Citigroup raised their price objective to $690 from $685; BofA Global Research increased their stock price forecast to $700 from $675; Deutsche Bank raised the price objective to $661 from $654; Wells Fargo raised the target price to $655 from $645.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect the premium to widen as BLK takes a share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” Cyprys added.

Upside and Downside Risks

Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

Check out FX Empire’s earnings calendar

BlackRock Wins Regulatory Approval to Start a Mutual-Fund Business in China; Target Price $630

BlackRock, the world’s largest investment management firm, received an approval to set up a wholly-owned mutual fund unit in the world’s second-largest economy, making it the one of the first global asset management firm to win regulatory approval from the China Securities Regulatory Commission.

BlackRock got the green light late this month to start a wholly-owned subsidiary in Shanghai, the China Securities Regulatory Commission said on Friday.

The approval would extend the investment management firm’s spectra in the Chinese asset management market, where it already operates as a mutual fund venture with Bank of China and is in the process of setting up a management venture with China Construction Bank and Temasek, Reuters reported.

Last month, BlackRock reported a 20% surge in profit in Q2, largely driven by a boost in fixed income and continued momentum in cash management.

BlackRock shares closed 1.02% higher at $601 on Friday, the stock is up about 19% so far this year.

BlackRock stock forecast

Twelve analysts forecast the average price in 12 months at $632.27 with a high forecast of $685.00 and a low forecast of $566.00. The average price target represents a 5.19% increase from the last price of $601.06. From those 12 analysts, ten rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $652 with a high of $985 under a bull-case scenario and $320 under the worst-case scenario. The brokerage currently has an “overweight” rating on the asset manager’s stock. Deutsche Bank also raised their target price to $568 from $566.

Other equity analysts also recently updated their stock outlook. BMO Capital Markets raised their target price on BlackRock to $620 from $560.00 and gave the company a “market perform” rating. Wells Fargo & Co raised their target price to $615 from $605 and gave the company an “overweight” rating. At last, Argus increased their price objective to $640 from $530 and gave the company a “buy” rating.

We think it is good to buy at the current level and target $630 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“BlackRock seems well-poised to capitalize on opportunistic acquisitions to enhance financial performance. Also, its efforts to gain market share in the active equity business will aid profitability,” noted equity analysts at Zacks Research.

“(But) Mounting expenses (mainly owing to higher general and administration costs) are likely to hurt BlackRock’s bottom line to an extent. High dependence on overseas revenues makes us apprehensive.”

Upside and Downside risks

Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

BlackRock Q2 Profit Surges Over 20%; Buy With Target Price of $630

BlackRock Inc, an American global investment management corporation based in New York City, reported that its second-quarter profit surged over 20%, largely driven by a boost in fixed income and continued momentum in cash management.

The world’s largest asset management company said its fixed-income funds took in $60.27 billion in new money and cash-management business received over $24.2 billion in net inflows. The asset manager reported $7.32 trillion in assets under management (AUM) by the quarter ended in June, up from $6.84 trillion just a year ago.

BlackRock’s net income jumped to 1.214 billion, or $7.85 a share in the second quarter, up from $1.003 billion, or $6.41 per share, a year earlier. The stock market rebounded in the three months from the coronavirus sell-off in March, boosting BlackRock’s AUM.

Executive comment

“BlackRock’s globally integrated asset management and technology platform generated $100 billion of total net inflows in the second quarter, representing 10% annualized organic base fee growth. iShares fixed-income ETFs and BlackRock’s active equity strategies both saw record inflows, and leadership in cash solutions drove strength inflows as clients sought liquidity,” Laurence D. Fink, Chairman and CEO said in a press release.

“Momentum also continued in sustainable strategies and illiquid alternatives, where we are investing for future growth.”

BlackRock stock forecast

Ten analysts forecast the average price in 12 months at $608.89 with a high forecast of $633.00 and a low forecast of $552.00. The average price target represents a 7.40% increase from the last price of $566.96. From those 10, nine analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $630 with a high of $969 under a bull scenario and $317 under the worst-case scenario. BlackRock had its price objective boosted by equities researchers at Citigroup to $630 from $570; Wells Fargo raised the price target from $605 to $615 and suggests a potential upside of more than 10%.

Other equity analysts also recently updated their stock outlook. Barclays boosted their target price on shares of BlackRock from $515 to $580 and gave the company an “overweight” rating. Bank of America increased its forecast from $600 to $633 and gave the company a “buy” rating. However, Deutsche Bank lowered their target price on shares of BlackRock from $565 to $563 and set a “hold” rating.

We second Morgan Stanley and Citigroup on BlackRock stock outlook. We also think it is good to buy at the current level and target at least $630 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“We believe BlackRock is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 4.5% average LT organic growth & continued op margin expansion. We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We expect premium to widen as BlackRock takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory,” he added.

Upside and Downside risks

Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth; Further growth in tech & high fee products such as alts, active equities, and multi-asset, Morgan Stanley highlighted as upside risks to BlackRock.

Market share loss in ETFs; lack of positive op leverage in declining markets; Worse than expected base fee pressure through pricing initiatives or mix shift; Greater regulatory scrutiny; liquidity challenges in products, Morgan Stanley highlighted as downside risks.