BlackRock Inc. (BLK)

[Pages:3]BlackRock Inc. (BLK)

Current Price:

$412

Fair Value Price: $468

% Fair Value:

88%

Dividend Yield:

3.0%

Dividend Risk Score: B

Updated October 16th, 2018 by Bob Ciura

Key Metrics

5 Year CAGR Estimate: 5 Year Growth Estimate: 5 Year Valuation Multiple Estimate: 5 Year Price Target Retirement Suitability Score:

13.7% 8.0 % 2.7% $691 B

Volatility Percentile: 36.5%

Momentum Percentile: 27.9%

Growth Percentile:

71.8%

Valuation Percentile: 77.1%

Total Return Percentile: 81.8%

Overview & Current Events

BlackRock is a large investment and asset management firm. It was founded in 1998, and today has over $6 trillion of assets under management. BlackRock provides investment management, risk management, and advisory services for institutional and retail clients worldwide. Its products include single and multi-asset class portfolios, equities, fixed income, alternative investments, and money market instruments. Approximately 82% of BlackRock's revenue is derived from investment advisory, administration fees, and securities lending, while the remainder is generated from performance fees, distribution fees, and technology services revenue.

On 10/16/18 the company announced third-quarter financial results. Revenue of $3.58 billion increased 2% year-overyear, but missed analyst expectations by $60 million. Adjusted earnings-per-share of $7.52 beat expectations by $0.65 per share. The disappointing revenue figure was the result of a surprise net outflow of $3.1 billion, compared with net inflows of $96.1 billion in the same quarter last year. BlackRock incurred more than $30 billion of institutional non-ETF index equity outflows during the quarter, which the company attributed to tightening monetary policy and heightened geopolitical uncertainty. Due to the somewhat disappointing financial performance in the third quarter, we have reduced our earnings growth rate to 8% reflecting a slightly weaker fund flows environment.

Growth on a Per-Share Basis

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2023

EPS $5.91 $6.11 $10.55 $12.37 $13.79 $16.87 $19.29 $19.79 $19.04 $22.47 $27.68 $40.67 DPS $3.12 $3.12 $4.00 $5.50 $6.00 $6.72 $7.72 $8.72 $9.16 $10.00 $12.02 $17.66

Shares 129.9 188.8 191.2 178.3 171.2 168.7 166.9 163.5 161.5 160.0 160.0 160.0

As you can see in the above table, BlackRock has done an excellent job growing earnings-per-share over the past 10 years. This growth was due to two key factors. First, the nearly uninterrupted bull market of the past decade has fueled greater investor confidence and higher investment activity. Second, BlackRock pioneered the exchange-traded-fund revolution. Over the past several years, investors have gravitated funds toward low-cost ETFs. BlackRock operates the iShares brand, which has seen strong growth from this new trend. This has allowed BlackRock to attract new clients and strong fund inflows, at the expense of traditional, higher-priced mutual funds offered by its competitors. As the company has grown earnings at a high rate, it has grown its dividend at a high rate as well.

Valuation Analysis

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Now 2023 Avg. P/E 31.6 28.2 17.2 14.5 13.5 16.0 16.6 17.5 18.3 18.7 14.9 17.0

Avg. Yld. 1.7% 1.8% 2.2% 3.1% 3.2% 2.5% 2.4% 2.5% 2.6% 2.4% 3.0% 2.6%

BlackRock shares currently trade for a price-to-earnings ratio of 14.9, based on expected earnings-per-share for 2018. In the past 10 years, BlackRock shares have traded for an average price-to-earnings ratio of 19.2. Due to a slower projected growth rate, our fair value estimate has been revised to a price-to-earnings ratio of 17. If the stock valuation expands to a price-to-earnings ratio of 17 over the next five years, annual returns would be boosted by 2.7% per year.

Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

BlackRock Inc. (BLK)

Updated October 16th, 2018 by Bob Ciura

Safety, Quality, Competitive Advantage, & Recession Resiliency

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2019 2018 2023 GP/A 22.5% 2.4% 2.5% 2.7% 2.5% 2.5% 2.5% 2.7% 2.7% 3.1% 3.0% 3.0% Debt/A 37.0% 86.2% 85.2% 86.0% 87.2% 87.9% 88.5% 87.3% 86.8% 85.5% 86.0% 86.0% Int. Cov. 271.3 27.9 26.2 23.3 20.6 22.1 22.8 27.0 28.3 35.1 35.0 35.0 Payout 52.8% 51.1% 37.9% 44.5% 43.5% 39.8% 40.0% 44.1% 48.1% 44.5% 43.4% 43.4% Std. Dev. 55.0% 46.4% 32.8% 24.5% 18.8% 23.1% 16.5% 20.9% 20.3% 15.1% 15.0% 15.0%

BlackRock has a high-quality business model. The company generates more than enough cash flow to satisfy its debt obligations and reward shareholders with dividends. The high interest coverage ratio, combined with a payout ratio below 50%, mean the current dividend is secure, with room for future increases. The main competitive advantage for BlackRock is its size, which is powerful when combined with a leading brand in the investment management industry. Many of its products, such as the iShares line of ETFs, are very popular for their low fees. That said, the company would likely suffer during a recession. Typically, economic downturns are accompanied by falling equity markets, which could lead to fund outflows. Investors should expect the next recession to negatively impact BlackRock's bottom line.

Final Thoughts & Recommendation

When investors think of investing in the financial sector, bank stocks or insurance stocks typically come to mind. However, investors should not forget about investment managers. BlackRock is a high-quality company, due to its leadership position in the industry. The company is enjoying rapid growth thanks to rising markets and its popular ETF product line. Despite the somewhat disappointing third-quarter earnings report, we expect total annual returns of 13.7%, which earns BlackRock a buy recommendation. Investors should also note that BlackRock earns B ratings for both Dividend Safety and Retirement Suitability, which is appealing for conservative, income-oriented investors.

Total Return Breakdown by Year

70% 60% 50% 40% 30% 20% 10%

0% -10% -20% -30%

-3.3% 2012

BlackRock, Inc. (BLK): Total Return Decomposition

56.8%

19.7%

15.7%

-2.2%

14.7%

2013

2014

2015

2016

2017

Total Return EPS Growth Dividend Return Valuation Change

13.7%

Sure Analysis Estimate

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Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

BlackRock Inc. (BLK)

Updated October 16th, 2018 by Bob Ciura

Year Revenue Gross Profit Gross Margin SG&A Expense D&A Expense Operating Profit Operating Margin Net Profit Net Margin Free Cash Flow Income Taxes

2008 5064 4473 88.3% 2566 236 1631 32.2% 784 15.5% 1780 387

Income Statement Metrics

2009 2010 2011 2012 2013 4700 8612 9081 9337 10180 4223 4512 4852 5040 5558 89.9% 52.4% 53.4% 54.0% 54.6% 2676 1354 1415 1359 1540 239 310 299 295 291 1300 2998 3281 3524 3857 27.7% 34.8% 36.1% 37.7% 37.9% 875 2063 2337 2458 2932 18.6% 24.0% 25.7% 26.3% 28.8% 1332 2357 2579 2090 3548 375 971 796 1030 1022

2014 11081 6084 54.9% 1453

278 4474 40.4% 3294 29.7% 3021 1131

2015 11401 6172 54.1% 1380

295 4664 40.9% 3345 29.3% 2783 1250

2016 11155 6046 54.2% 1301

263 4646 41.6% 3172 28.4% 2035 1290

2017 12491 6823 54.6% 1462

240 5272 42.2% 4970 39.8% 3673 270

Year Total Assets ($B) Cash & Equivalents Accounts Receivable Goodwill & Int. ($B) Total Liabilities ($B) Accounts Payable Long-Term Debt Total Equity ($B)

D/E Ratio

2008 19.92 2032 901 11.97 7.36 545 1142 12.07 0.09

Balance Sheet Metrics

2009 2010 2011 2012 2013 178.12 178.46 179.90 200.45 219.87 4708 3460 3560 4903 4551 1718 2095 1960 2250 2247 30.35 30.32 30.15 30.31 30.48 153.52 152.13 154.63 174.87 193.26

840 1068 923 1055 1084 5668 4637 6364 8189 7308 24.33 26.09 25.05 25.40 26.46 0.23 0.18 0.25 0.32 0.28

2014 239.79 6001 2120 30.31 212.31 1035 8311 27.37 0.30

2015 225.26 6231 2237 30.50 196.68 1068 4930 28.50 0.17

2016 220.18 6175 2115 30.48 191.03

880 4915 29.10 0.17

2017 220.22 7038 2699 30.61 188.34 1161 5014 31.83 0.16

Profitability Metrics

Year

2008 2009 2010 2011 2012 2013

Return on Assets 3.7% 0.9% 1.2% 1.3% 1.3% 1.4%

Return on Equity 6.6% 4.8% 8.2% 9.1% 9.7% 11.3%

ROIC

5.8% 4.0% 6.7% 7.5% 7.5% 8.7%

Revenue/Share 38.55 33.70 44.69 48.53 52.45 58.56

FCF/Share

13.55 9.55 12.23 13.78 11.74 20.41

Note: All figures in millions of U.S. Dollars unless per share or noted otherwise.

Disclaimer

2014 1.4% 12.2% 9.4% 64.76 17.66

2015 1.4% 12.0% 9.7% 67.45 16.46

2016 1.4% 11.0% 9.4% 66.96 12.22

2017 2.3% 16.3% 14.0% 75.97 22.34

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this research report should be construed as a recommendation to follow any investment strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in marketable securities. Past performance is not a guarantee of future performance.

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