Key points to remember
- Adjusted EPS was 10.18 versus analysts’ expectation of $8.92.
- Revenue exceeded analysts’ expectations.
- Organic growth in assets under management over the full year is in line with analysts’ forecasts.
What happened
BlackRock released adjusted EPS for the fourth quarter of fiscal 2020 that beat analysts’ expectations. Revenue for the quarter was also higher than expected. Both metrics rose at a healthy pace from the prior year quarter. The asset manager’s organic growth in assets under management for the full year 2020 was in line with analysts’ expectations.
(Below is the original Earnings Snapshot from Investopedia, published January 13, 2021.)
What to look for
BlackRock Inc. (BLK), the world’s largest asset manager, faces major challenges these days as the company grapples with slowing growth. BlackRock must redirect billions of dollars in investments to comply with US government sanctions against Chinese companies with military ties. As a result, BlackRock funds must sell the blacklisted companies or risk losing US investors who are no longer allowed to buy shares of funds holding those companies.
As BlackRock readjusts its funds, investors will focus on the company’s overall performance when it reports its results on January 14, 2021 for the fourth quarter of fiscal 2020.Analysts expect modest gains in both adjusted earnings per share (EPS) and revenue from the year-ago quarter.
Investors will also closely monitor the company’s organic growth in assets under management (AUM), a key metric for asset managers that measures AUM growth by bringing in new clients and more money from existing clients. . Analysts expect organic growth in assets under management to slow compared to the same three-month period a year ago.
BlackRock shares have outperformed the broader market for most of the past year. The stock plunged with the rest of the market from late February 2020, but has rebounded from lows reached in the second half of March at a much faster pace than the market. BlackRock shares have provided a total return of 52.5% over the past 12 months, more than three times the S&P 500 total return of 15.6%.
Source: Trading View.
The stock has been supported by strong financial performance over the past few quarters. BlackRock reported a 29.0% increase in adjusted EPS in the third quarter of fiscal 2020, its second-fastest growth rate in at least 15 quarters. Revenue grew 18.3%, its fastest pace since the fourth quarter of fiscal 2017.BlackRock said revenue growth reflected higher performance fees and continued organic growth.
In the second quarter of fiscal 2020, adjusted EPS increased by 22.3% compared to the prior year quarter. This is a significant improvement from the 0.2% decline in the first quarter of fiscal 2020. Second quarter revenue increased 3.5%, driven by higher performance fees and strong growth in technology services revenues. Shares of the company fell slightly over the next week before continuing their upward trend that lasted until early September.
Analysts expect adjusted EPS to increase 6.9% on a 6.8% revenue increase for the fourth quarter of fiscal 2020. For the full year 2020, adjusted EPS is expected to increase 13 .7% while the annual turnover increased by 9.9%. That would mark the fastest pace of revenue growth since 2017.
| BlackRock Key Metrics | |||
|---|---|---|---|
| Estimate for the fourth quarter of 2020 (fiscal year) | Q4 2019 (fiscal year) | Q4 2018 (fiscal year) | |
| Adjusted earnings per share ($) | 8.92 | 8.34 | 6.08 |
| Revenue ($B) | 4.2 | 4.0 | 3.4 |
| Organic growth of assets under management (%) | 1.5 | 1.9 | 0.8 |
Source: Visible alpha
As mentioned above, investors will also focus on BlackRock’s organic growth in AUM. As an asset manager, BlackRock manages the funds entrusted to it by its clients. It offers and manages various financial products, such as its iShares line of exchange-traded funds (ETFs) and mutual funds. The assets held by these funds include the company’s assets under management. These assets can increase inorganically by price appreciation or favorable exchange rate movements, or organically by attracting new customers or more money from existing customers. Organic growth in assets under management excludes the effects of asset price increases and currency fluctuations, focusing on the company’s ability to attract new money from new and existing clients.
BlackRock posted a 1.8% organic increase in its assets under management in the third quarter of 2020, marking the fastest pace since the fourth quarter of fiscal 2019 and slightly faster than the 1.6% pace posted in second quarter of fiscal 2020. Analysts expect organic growth in the fourth quarter of fiscal 2020 to decelerate to 1.5%, a slower pace than the previous two quarters as well as the quarter of last year. For the full year 2020, organic growth in assets under management is expected to be 5.2%, a slowdown from the 2019 pace of 7.2%.