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Stock Analyst Update

BlackRock Closes June With Near-Record Number of Assets

We expect to increase our fair value estimate for the wide-moat firm.


While there was little in wide-moat BlackRock's (BLK) second-quarter earnings to alter our long-term view of the firm, we expect to increase our fair value estimate to $560 per share from $500 to account for the recovery in the markets the last several months (following the steep COVID-19-induced sell-off late in the first quarter). BlackRock closed out the June quarter with a near-record $7.318 trillion in managed assets, up 13.2% (6.9%) sequentially (year over year), with organic growth, market gains and advantageous currency exchange all adding to the improvement in overall AUM. 

Net long-term inflows of $62.2 billion during the second quarter were better than the positive $48.2 billion quarterly run rate we'd seen from BlackRock during the prior eight calendar quarters but was not out of character with what we have been hearing from some of the other asset managers (that also saw a nice recovery in flows and AUM during the June quarter). While iShares continues to drive the bulk of BlackRock's organic growth (generating $43.1 billion in inflows during the second quarter), the firm has fallen behind Vanguard this year on the flow front (with that firm pulling in an estimated $96.3 billion in inflows since the start of the year compared with BlackRock at $64.8 billion)--an issue that bears watching in the near term. 

Average long-term AUM growth of positive 2.9% year over year during the second quarter translated into a 2.2% increase in base fee revenue growth, as product mix shift led to a 3.0% decline in the firm's realization rate. Total revenue was up 3.5% when compared with the prior-year's quarter, and up 7.1% on a year-to-date basis. As for profitability, BlackRock posted a 20-basis-point decline in first-half adjusted operating margins to 36.4%, which, given some of the added general and administrative costs that have been incurred in response to the COVID-19 pandemic and subsequent market and economic dislocation, seems about right to us.

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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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