BlackRock Earnings Preview: Weak Revenue Growth Expected

BlackRock BLK, shares of which Barron's said this week were undervalued, is scheduled to report its third-quarter 2012 results Wednesday, October 17, before the opening bell. Investors are hoping this report ends a string of four-straight quarters of revenue decreases, as well as marks a rebound after a net income drop last quarter. Expectations Analysts on average predict that BlackRock will report that revenue crept up 1.7 percent year-over-year to $2.26 billion. Per-share earnings are expected to come to $3.29 for the quarter, up from $3.10 in the second quarter and $2.83 per share in third quarter of last year. The current consensus EPS estimate was $3.26 some 60 days. Analysts have underestimated BlackRock's EPS in the past nine quarters; the upside surprise was three percent in the second quarter. EPS growth in the second quarter was attributed to repurchasing of more than 6 million shares. Assets under management fell three percent, and performance fees fell 18 percent. Shares declined more than six percent in the days following the earnings release. Both EPS and revenue are expected to increase sequentially and year-over-year in the current quarter. So far, the full year forecast has EPS about 10 percent higher year-over-year and revenue up marginally. The Company BlackRock is the world's largest investment manager. The firm primarily provides its services to institutional, intermediary and individual investors. It also manages accounts for corporate, public, union and industry pension plans, insurance companies, third-party mutual funds, endowments, foundations, charities, corporations, official institutions and banks. It is an S&P 500 component with a market capitalization near $32 billion. It was founded in 1988, went public in 1999 and is headquartered in New York City. Laurence Fink is the chief executive, chairman and a co-founder. Competitors include Legg Mason LM and State Street STT. The former is expected to post a 26 percent jump in EPS but declining revenue when it reports on October 22. However, Legg Mason had a net loss in the previous quarter. State Street is on deck to report later this week, and analysts are looking for flat year-over-year earnings and a marginal decline in revenue. During the three months that ended in September, BlackRock announced that acquisition of Swiss Re Private Equity Partners, added to its board and senior management team, filed for foreign currency exchange-traded funds (ETFs), increased its stake in Newcrest Mining, announced it would slash costs on some ETFs to better compete and launched a "frontier market" fund. Performance BlackRock's long-term EPS growth forecast is more than 12 percent. Its price-to-earnings (P/E) ratio is higher than the industry average, but so is its operating margin. The return on equity is higher than that of Legg Mason, and its dividend yield is about 3.3 percent. Short interest is near one percent of the float. Twelve of 20 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares. Their mean price target signals more than 10 percent potential upside. The stock is up about six percent year to date but about nine percent lower than the 52-week high. The share price is also about six percent higher than 90 days ago, and it is currently above the 200-day and 50-day moving averages. Over the past six months, the stock has outperformed Legg Mason and State Street, but its performance has been more or less in line with the broader markets.