7 Reasons BlackRock Is Expected To Outperform The Market

• BlackRock, Inc. BLK shares have plunged 16 percent since June 10, and are currently trading closer to the lower end of their 52-week range of $275.00 - $382.84.
• Credit Suisse’s Craig Siegenthaler upgraded the rating for the company to Outperform, while reducing the price target from $438 to $382.
• While detailing the 7 reasons for the company’s outperformance, Siegenthaler noted that the recent market turmoil had offered an attractive entry point for the stock.

Analyst Craig Siegenthaler said that several investors had sold off BlackRock’s shares over the past six months due to concerns surrounding the asset management industry, rather than any issues at the company. He added, however, that in view of BlackRock’s strong positioning for many of these broad-industry issues, several of these points may prove to be “drivers for future relative outperformance” for the company.

In the report Credit Suisse noted the 7 reasons why BlackRock should outperform:

1. Higher EPS & Net Flow Visibility - Despite higher growth, BlackRock’s core fundamental metrics exhibit “modestly lower volatility than peers,” given the diversification across the revenue and expense base.
2. DOL Defensive Business Model – The Department of Labor’s proposal, issued in April, will become effective only by January 2017. Siegenthaler expects companies with large scale and a strong brand as well as ETFs and passive products to benefit from the DOL Rule implementation.
3. Relatively Well Positioned for Rising Rates & Bear Market – Among other factors in a rising rates scenario, excess bank deposits would be flowing into money market and short duration bond funds. BlackRock has “one of the largest money market and short duration bond businesses, and strong institutional relationships,” Siegenthaler wrote. In a bear market, BlackRock’s broad-based advisory role with large investors helps it get new business during periods of turmoil.
4. Positive Business Mix Shift, with Future Revenue Growth being higher than AuM – BlackRock has a low base fee rate and positive mix shift across all three metrics - product, channel and geography. Hence, the company’s future revenue growth is expected to exceed its AuM growth by 1-2 percent per annum. This adds 2-3 percent to the company’s annual EPS growth rate.
5. Sum-of-the-Parts Valuation – “We think the BLK stock is not receiving proper value for its two high growth, differentiating franchises – both iShares and Solutions (Aladdin & FMA),” the analyst said. If the market were to pay a peer group average for the company’s core business, and a premium for its ETF and solutions businesses, the stock could appreciate to $400 in 12 months.
6. Quantifying the Long-term Bull Thesis - If the company’s stock can compound about 16 percent EPS growth over five years, EPS will grow by 110 percent, and around $55 will come in dividends. So, under normal conditions, BlackRock can return around 130 percent over five years, with no multiple expansion.
7. Deep Management Bench – “One key differentiator of BLK is the high quality of management that Larry Fink and Rob Kapito have surrounded themselves with (and helped cross-train) over the last ten years,” Siegenthaler commented.