Reports Q2, 2019 results on Friday, July 19, before the market opens
Revenue Expectation: $ 3.58 billion
EPS expectation: $ 6.65
& # 39; The world's largest asset manager, BlackRock (NYSE :), faces fierce criticism when this morning reports on the second quarter. Investors are worried and will want to know exactly how the company's profitability is affected by a slowdown in growth and price wars.
Analysts are not positive about the short-term growth prospects for the New York-based company. For the quarter ending June 30, BlackRock is likely to report almost flat sales and earnings compared to the same period a year ago, according to consensus forecasts. Earnings can slide to $ 6.65 per share from $ 6.66 a year ago on sales of $ 3.58 billion.
BlackRock's financial performance in recent quarters has been a mixed product for investors. After reporting a decline in earnings last year, the company was still able to produce an impressive sales increase that increased by 4.5% in 2018. But this year does not look that promising. Turnover fell 7% compared to a year ago in the first quarter, despite the rising market.
BlackRock grew to a $ 6.5 trillion financial manager during the bull market of the past decade, helped by the rising iShares ETF activities. The ETF, or exchange-traded funds, have been the engine of growth for BlackRock since the 2008 financial crisis, which means it can be managed more than twice as much.
But that growth area is threatened if the company is confronted with a slowing net inflow and a price war that is depressing prices. Competition from both large and smaller players has put margins under pressure, according to data from Bloomberg. Five years ago, BlackRock earned approximately $ 0.25 in revenue per year for every dollar it managed. Last year, that figure dropped to $ 0.23 and in the first quarter it dropped further to $ 0.21.
This headwind was primarily responsible for the inconsistent performance of BlackRock shares since early 2018. Trading at $ 470.85 at the close of yesterday, they have risen around 20% this year, but have only 10 in the past two years % won
Still a powerful name
Despite this negative background, BlackRock remains a strong name in asset management activities. It is difficult to discount its dominant position and future upside potential. For example, ETF & # 39; s are still emerging outside the United States
The company predicts that the global market for the funds will have more than doubled to $ 12 trillion by the end of 2023, fueled by continued downward pressure on financial advisory fees and the increasing willingness of investors to bond ETF & # 39; s for easy exposure to fixed income markets.
The company's financial risk software, known as Aladdin, remains a powerful tool for generating recurring income and offers a great hedge when markets turn negative. Aladdin can predict how the performance of a portfolio can be affected in extreme scenarios, such as the 2008 crash. The users include pension funds, insurance companies and competing asset managers who pay to license Aladdin based on the possibilities who use them.
Bottom Line
BlackRock, despite its broad canal and future growth potential, is not the kind of stock that one should buy if markets have become vulnerable as a result of escalating risks to global growth. The shares of BlackRock are now traded against an almost 18-fold 12-month gain, compared to 21 at the start of last year, suggesting that investors adjust their expectations.
After the powerful rally of the past decade, we believe we have seen the stock market best in this bull market and in the short term it is unlikely that a bet will pay off in a big way. Staying on the sidelines is a better strategy for this name.
