PDF BlackRock, Inc.

February 12, 2015

BlackRock, Inc. (BLK-NYSE)

Current Recommendation

Prior Recommendation Date of Last Change

NEUTRAL

Neutral 07/03/2011

Current Price (02/11/15) Target Price

$369.90 $388.00

SUMMARY DATA

52-Week High 52-Week Low One-Year Return (%) Beta Average Daily Volume (sh)

Shares Outstanding (mil) Market Capitalization ($mil) Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%)

Annual Cash Dividend Dividend Yield (%)

5-Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%)

P/E using TTM EPS

P/E using 2015 Estimate P/E using 2016 Estimate

Zacks Rank *: Short Term 1 3 months outlook

* Definition / Disclosure on last page

$370.67 $293.71

23.96 1.46

600,019

165 $61,034

3.45 81 3

$8.72 2.36

9.9 17.0 15.7

19.1 18.3 15.8

3 - Hold

SUMMARY

BlackRock s fourth-quarter 2014 earnings outpaced the Zacks Consensus Estimate. Results benefited from a marginal fall in operating expenses and robust inflows. However, revenue growth remained muted. We believe that enhanced capital deployment activities and opportunistic acquisitions will likely be accretive to the company s overall performance. Further, the company s initiatives to improve market share in the ETF business should propel revenue growth. However, elevated expenses, high dependence on fee-based revenues and regulatory restrictions on its revenue sources make us apprehensive.

Risk Level *

Type of Stock Industry Zacks Industry Rank *

Below Avg.,

Large-Blend Fin-Invest Mgmt

153 out of 267

ZACKS CONSENSUS ESTIMATES

Revenue Estimates

(In millions of $)

Q1

Q2

(Mar)

(Jun)

2013 2014 2015 2016

2,449 A 2,670 A 2,797 E

2,482 A 2,778 A 2,880 E

Q3 (Sep)

2,472 A 2,849 A 2,953 E

Q4 (Dec)

2,777 A 2,784 A 3,082 E

Year (Dec)

10,180 A 11,081 A 11,712 E 12,903 E

Earnings Per Share Estimates

(EPS is operating earnings before non-recurring items, but including employee stock options expenses)

Q1

Q2

Q3

Q4

Year

(Mar)

(Jun)

(Sep)

(Dec)

(Dec)

2013 2014

$3.64 A $4.42 A

$4.14 A $4.89 A

$3.88 A $5.21 A

$4.92 A $4.82 A

$16.58 A $19.34 A

2015 $4.54 E 2016

$4.93 E

$5.23 E

$5.47 E

$20.17 E $23.39 E

Projected EPS Growth - Next 5 Years %

9

? 2015 Zacks Investment Research, All Rights reserved.



10 S. Riverside Plaza, Chicago IL 60606

OVERVIEW

BlackRock Inc. founded in 1988 is headquartered in New York. The company is one of the world s major publicly traded investment management firms. It offers products that span the risk spectrum, including active, enhanced and index strategies across markets and asset classes. The company offers these products through a variety of structures including separate accounts, mutual funds, iShares (ETFs) and other pooled investment vehicles.

BlackRock also offers risk management, and advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. The company is not engaged in proprietary trading or other activities, which may lead to a conflict of interest with clients.

As of Dec 31, 2014, PNC Financial Services Group Inc. held approximately 22.0% stake in BlackRock that included outstanding common and non-voting preferred stock.

BlackRock had approximately 12,200 employees in more than 30 countries and a strong presence in key global markets, including the U.S., Europe, Asia, Australia, Africa, and the Middle East, as of Dec 31, 2014. The company s assets under management (AUM) were $4.7 trillion as of that date.

BlackRock manages its AUM through the following categories:

Equity: BlackRock s equity AUM reflects the diversity of its business model and includes a wide range of both active and passive strategies (including the institutional index and iShares products). The AUM for this class was $2,451.1 billion as of Dec 31, 2014.

Fixed Income: BlackRock s fixed income asset class is evenly divided between passive and active mandates with 51% and 49% shares, respectively. AUM under this class as of Dec 31, 2014 was recorded at $1,393.7 billion.

Multi-Asset Class: BlackRock s multi-asset class team manages a range of personalized mandates for a diversified client base that leverages its broad investment expertise in global equities, currencies, bonds and commodities as well as its extensive risk management capabilities. As of Dec 31, 2014, AUM under this class was $377.8 billion.

Alternatives: BlackRock Alternative Investors manage the company s alternative investment efforts, including product management, business development and client service. There are two types of alternative products namely Core products (hedge funds, funds of funds and real estate offerings) and Currencies and Commodities. AUM under this class came in at $111.2 billion as of Dec 31, 2014.

Cash Management: Cash management products include both taxable and tax-exempted money market funds and customized separate accounts. Portfolios may be denominated in U.S. dollar, Euro or British pound. AUM under this class came in at $296.4 billion as of Dec 31, 2014.

Advisory: Total AUM from this asset class was $21.7 billion as of Dec 31, 2014.

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In Oct 2007, BlackRock concluded the acquisition of fund of funds business of Quellos Group, LLC. The combined fund of funds platform operates as BlackRock Alternative Advisors.

In 2009, BlackRock acquired Barclays Global Investors (BGI), a wing of Barclays PLC. It remains one of the most significant deals in BlackRock s history. The cash-and-stock deal, valued at $13.5 billion, created the world s largest asset management company of that period.

In 2012, BlackRock bought Claymore Canada from Guggenheim Partners LLC to expand its exchangetraded fund ( ETF ) business in Canada. Moreover, the company concluded the takeover of Swiss Re Private Equity Partners (SRPEP) AG, the private equity operations arm of the fund management group, Swiss Re Ltd.

In 2013, BlackRock completed the acquisition of Credit Suisse s ETF business. The acquisition complements the existing iShares ETF range with funds domiciled in Switzerland, Ireland and Luxembourg. Later in the same year, the company completed the acquisition of MGPA, an independent private-equity property investment advisory firm in the Asia Pacific and Europe.

REASONS TO BUY

BlackRock s strong global presence allows broad diversification and organic growth. The company s revenues (on GAAP basis) depict an upward trend with a 6-year CAGR of 18.7% (2009 2014). We believe that the company s diversified products and revenue mix will enable it to adapt easily to the changing needs of clients. Further, BlackRock s brand initiatives for the iShares and ETF business will help it expand top line.

BlackRock remains attractive to yield-seeking investors due to its strong capital deployment activities. In Jan 2015, the company announced a 13% hike in dividend to $2.18 per share. Further, the company has steady share repurchase program in place. In Jan 2015, the company authorized additional 6.0 million shares for repurchase, bringing the total buyback authorization to 9.4 million shares. We believe that the company s steady earnings power will allow it to continue returning capital to shareholders.

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BlackRock has expanded largely via acquisitions both domestic and overseas. Notably, most of its AUM growth was attributable to acquisitions over the last five years. The company acquired MGPA and Credit Suisse s ETF business in 2013 as well as Claymore Investments and Swiss Re in 2012. So far, the acquisition of BGI in 2009 remains the biggest deal, which nearly doubled the company s AUM at that time. Further, the company has ample acquisition opportunities in the overseas markets.

REASONS TO SELL

Increased operating expenses remain a major concern for BlackRock. The company witnessed a persistent rise in adjusted operating expenses at a CAGR of 4.6% over the last 4 years (as of the end of 2014). Moreover, increased regulatory compliance costs as well as higher marketing costs (related to the company s brand campaign) will keep expenses high.

BlackRock is a geographically diversified company with presence in almost all the major markets of the world. Its dependence on overseas revenue has remained almost at the same level over the last few years. In 2013, the overseas revenues constituted nearly 33% of the total revenue compared with 31% in 2012 and 33% in 2011. Though the company generates just about onethird of the revenues from overseas markets, a number of risks stemming from regulatory and political environment, foreign exchange fluctuations and performance of regional economy could negatively affect its top-line growth.

Investment advisory, administration and securities lending fees are the major sources of revenue for BlackRock, comprising nearly 87% of its total revenue in 2014. The increased dependence on these sources could adversely impact the company s financials as changes in AUM owing to market fluctuations and foreign exchange translations, regulatory changes or a sudden slowdown in overall business activities could hurt these revenues.

Note: We will be updating some data once the company files its 10-K for 2014.

RECENT NEWS

BlackRock Q4 Earnings Beat on Solid Inflows, Dividend Hiked Jan 15, 2015

BlackRock reported fourth-quarter 2014 adjusted earnings of $4.82 per share, which surpassed the Zacks Consensus Estimate of $4.68. However, this compared unfavorably with the year-ago quarter figure of $4.92.

For the full year 2014, adjusted earnings per share came in at $19.34, up 17% year over year. This also outpaced the Zacks Consensus Estimate of $19.24.

Robust inflows proved to be the major contributor to the better-than-expected results. Top-line growth remained mute. However, growth in AUM continued to be impressive.

After considering certain non-recurring items, net income for BlackRock summed $813 million or $4.77 per share, down from $841 million or $4.86 per share in the prior-year quarter.

For 2014, net income (after considering certain non-recurring items) rose 12% year over year to $3.3 billion.

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Performance in Detail

Adjusted revenue totaled $2.68 billion, in line with the year-ago quarter figure. Additionally, the reported figure missed the Zacks Consensus Estimate of $2.86 billion.

For 2014, adjusted revenue climbed 9% year over year to $10.7 billion. However, it lagged the Zacks Consensus Estimate of $11.0 billion.

Total expenses amounted to $1.64 billion, down marginally on a year-over-year basis. Decline in general and administration expenses, along with lower amortization of intangible assets, were largely offset by higher direct fund expenses as well as distribution and servicing costs.

Non-operating expenses, net of non-controlling interests, stood at $53 million compared with nonoperating income of $15 million in the prior-year quarter.

BlackRock s adjusted operating income came in at $1.16 billion, up 1% from the year-ago quarter.

As of Dec 31, 2014, AUM totaled $4.65 trillion, rising 8% year over year. Further, the company witnessed total long-term inflows of $87.8 billion.

Share Repurchases

The company bought back shares worth about $250 million in the reported quarter. Moreover, the authorization of an additional 6.0 million shares under the current repurchase program was announced by the company, with the total outstanding shares aggregating 9.4 million.

Dividend Update

On Jan 15, BlackRock announced a 13% hike in its quarterly cash dividend to $2.18 per share. The dividend will be paid on Mar 24 to shareholders of record as of Mar 6.

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