Thematic evaluation
Back to company overview

Blackrock Finance, Inc. (BLK)

September 06, 2024

Compared to: Blackstone, Inc. (BX) | KKR Group Co., Inc. (KKR) | Financial Select Sector SPDR Fund (XLF)

Our reasoning

BlackRock appears moderately undervalued based on its strong financial performance, market leadership position, and growth prospects, particularly in private markets and technology services. The company's valuation multiples are below industry averages despite its superior profitability metrics and robust growth opportunities. While risks exist, BlackRock's diversified business model and strong competitive advantages provide resilience across various scenarios.

Key takeaways
  • BlackRock is a leading global investment management firm with a diversified platform of active, index, and alternative investment strategies, as well as a robust technology services business centered around the Aladdin platform.
  • The company has demonstrated strong financial performance, with consistent revenue growth, high profitability, and robust cash flow generation.
  • BLK is actively expanding its business through strategic acquisitions and focusing on driving organic growth, improving operating efficiency, and returning capital to shareholders.
  • The company faces several risks, including market and competition risks, investment performance risks, operational and technology risks, legal, regulatory, and reputational risks.
  • BLK's valuation is generally in line with its peers, indicating a fair valuation relative to its industry.
  • The company's price performance has been mixed compared to the benchmark and its peers, with periods of outperformance and underperformance.
  • BLK's future outlook is positive, driven by its strong financial performance, its strategic acquisitions, and its ability to manage expenses effectively.
  • Overall, BLK appears well-positioned to navigate the evolving asset management landscape, but must continue to innovate, manage costs, and mitigate various operational, financial, and reputational risks to maintain its industry-leading position.
Undervalued
Ask a question about Blackrock Finance, Inc. (BLK)
Evaluation summary

  1. Company Overview:

    • BlackRock, Inc. (BLK) is a leading global investment management firm providing a wide range of investment management and technology services to institutional and retail clients worldwide. Its core business model revolves around managing assets for clients, generating revenue primarily through investment advisory and administration fees based on assets under management (AUM).
    • BLK offers a diversified platform of active, index, and alternative investment strategies across asset classes, including equities, fixed income, alternatives, and money market instruments. The company also provides proprietary investment and risk management technology platform (Aladdin), advisory and technology services, and data and analytics solutions.
    • BLK's target market includes a diverse mix of institutional and retail clients globally, including pension plans, official institutions, insurance companies, corporations, and financial intermediaries.
    • We will be using the Financial Select Sector SPDR Fund (XLF) as a benchmark for BLK's price performance and comparing it to its industry peers, Blackstone, Inc. (BX) and KKR Group Co., Inc. (KKR), for a comprehensive assessment.

  2. Financial Performance:

    • BLK has demonstrated consistent revenue growth over the past few quarters, driven by a combination of organic growth, market appreciation, and strategic acquisitions. The company's ability to attract and manage assets for its clients is a key driver of its revenue growth.
    • BLK's profitability is strong, as evidenced by its high return on assets (ROA), return on equity (ROE), return on total capital (ROTC), and return on invested capital (ROIC). These ratios are all significantly higher than the industry average, indicating that the company is highly efficient in generating profits from its assets and capital.
    • BLK's profitability has been steadily improving over the past few quarters, suggesting that its operations are becoming more efficient and its strategic initiatives are contributing to its overall profitability.
    • Compared to its peers, BLK has generally underperformed BX and KKR in terms of returns over the past three years. This underperformance could be attributed to its more conservative investment strategies, which may have resulted in lower returns during periods of strong market growth. However, BLK has also exhibited lower volatility and a more conservative risk profile, making it a suitable investment for investors seeking a more stable and less risky investment.

  3. Operational Efficiency:

    • BLK's strong cash and short-term investment position indicates a robust liquidity position, enabling the company to meet its short-term obligations and pursue strategic opportunities. The company's strong operating cash flow trends also indicate a healthy short-term liquidity position.
    • BLK's manageable debt levels and strong equity position suggest a solid long-term solvency and financial stability. The company's debt-to-equity ratio and debt-to-EBITDA ratio are both significantly lower than the industry average, indicating a conservative capital structure and a strong ability to service its debt obligations.
    • BLK's high return on assets and return on equity ratios indicate efficient utilization of its assets to generate revenue. The company has demonstrated its ability to control operating expenses in relation to revenue growth, resulting in improving operating efficiency.
    • BLK's free cash flow generation is strong, providing ample capacity for debt repayment, dividend growth, and investments in organic growth opportunities. The company's capital expenditures have been decreasing, suggesting a focus on organic growth and strategic acquisitions rather than significant investments in physical assets.
    • BLK's dividend and share repurchase sustainability is strong, supported by its robust cash flow generation and conservative capital structure. The company has a history of consistently paying dividends and repurchasing shares, demonstrating its commitment to shareholder returns.
    • Compared to its peers, BLK has exhibited lower annualized volatility, suggesting that its investment strategies are less susceptible to market fluctuations, resulting in a smoother ride for investors. However, its maximum drawdown is higher than KKR's, indicating that it is not completely immune to market downturns.

  4. Growth Opportunities:

    • BLK is actively expanding its business through strategic acquisitions, such as Kreos Capital and GIP, to enhance its capabilities in private markets and infrastructure investing. The company is also focused on driving organic growth, improving operating efficiency, and returning capital to shareholders.
    • BLK's strategic focus areas include expanding its private markets capabilities, leveraging its technology platform (Aladdin) to provide innovative solutions, and capitalizing on the growing demand for infrastructure investments.
    • The company has a strong track record of successfully integrating acquisitions and executing on its strategic plans. Management's historical execution of strategic plans has been effective in driving growth and profitability.
    • BLK's capital allocation strategies are aligned with its long-term growth objectives, focusing on investments in organic growth, strategic acquisitions, and shareholder returns.

  5. Risks and Threats:

    • BLK faces several risk factors, including market and competition risks, investment performance risks, operational and technology risks, legal, regulatory, and reputational risks, and risks related to integrating and managing acquisitions and strategic investments.
    • The asset management industry remains highly competitive, with pressure on fees and increased demand for passive/index products, multi-asset solutions, and technology-enabled services. Regulatory scrutiny and macroeconomic factors like interest rates and market volatility also pose significant risks.
    • BLK's reliance on third-party providers for certain operational and technology functions exposes it to potential disruptions and cybersecurity risks. The company's global operations also expose it to geopolitical and regulatory risks.

  6. Valuation Analysis:

    • BLK's valuation metrics, such as P/E ratio and EV/EBITDA, are generally in line with its peers, indicating a fair valuation relative to its industry.
    • The company's strong financial performance, growth opportunities, and strategic initiatives suggest a potential for future valuation expansion.
    • Potential catalysts for BLK's valuation include continued organic growth, successful integration of acquisitions, and expansion into new markets.

  7. Price Performance:

    • BLK's price performance has been mixed compared to the Financial Select Sector SPDR Fund (XLF) over various periods. While BLK outperformed XLF in the 1-year and 3-month periods, it underperformed in the YTD, 6-month, 2-year, and 3-year periods. This inconsistency in performance suggests that BLK's returns are not consistently outpacing the broader financial sector.
    • BLK's performance has been less consistent compared to its peers. While it has outperformed BX in some shorter periods, such as the 1-week and 1-month periods, it has consistently underperformed KKR. This suggests that BLK's investment strategies may be less effective in capturing market opportunities compared to its peers.
    • BLK's higher volatility and larger drawdowns indicate a riskier investment profile compared to XLF. Its higher beta suggests that it is more sensitive to market movements, making it a less suitable option for risk-averse investors.

  8. Future Outlook:

    • BLK's future outlook is positive, driven by its strong financial performance, its strategic acquisitions, and its ability to manage expenses effectively.
    • The company's revenue growth is expected to continue, driven by its strong market position, its ability to attract and manage assets for its clients, and its strategic acquisitions.
    • Profitability margins are expected to remain stable, reflecting the company's efficient operations and its ability to control expenses.
    • BLK's strong cash flow generation provides significant financial flexibility for future investments, acquisitions, or economic downturns.

  9. Summary:

    • BLK is a leading global investment management firm with a diversified platform of active, index, and alternative investment strategies, as well as a robust technology services business centered around the Aladdin platform.
    • The company has demonstrated strong financial performance, with consistent revenue growth, high profitability, and robust cash flow generation.
    • BLK is actively expanding its business through strategic acquisitions and focusing on driving organic growth, improving operating efficiency, and returning capital to shareholders.
    • The company faces several risks, including market and competition risks, investment performance risks, operational and technology risks, legal, regulatory, and reputational risks.
    • BLK's valuation is generally in line with its peers, indicating a fair valuation relative to its industry.
    • The company's price performance has been mixed compared to the benchmark and its peers, with periods of outperformance and underperformance.
    • BLK's future outlook is positive, driven by its strong financial performance, its strategic acquisitions, and its ability to manage expenses effectively.
    • Overall, BLK appears well-positioned to navigate the evolving asset management landscape, but must continue to innovate, manage costs, and mitigate various operational, financial, and reputational risks to maintain its industry-leading position.
Peer fundamentals 
Fundamentals
Insights
  • BlackRock is a leading global investment management firm with a diversified platform of active, index, and alternative investment strategies, as well as a robust technology services business centered around the Aladdin platform.
  • The company's revenue growth is driven by a combination of organic growth, market appreciation, and its strategic acquisitions.
  • BlackRock's profitability is strong, as evidenced by its high return on assets (ROA), return on equity (ROE), return on total capital (ROTC), and return on invested capital (ROIC).
  • The company's strong cash flow generation provides significant financial flexibility for future investments, acquisitions, or economic downturns.
  • BlackRock faces several risk factors, including market and competition risks, investment performance risks, operational and technology risks, legal, regulatory, and reputational risks, and risks related to integrating and managing acquisitions and strategic investments.
  • Overall, BlackRock appears well-positioned to navigate the evolving asset management landscape, but must continue to innovate, manage costs, and mitigate various operational, financial, and reputational risks to maintain its industry-leading position.
Analysis
  • Revenue - BlackRock's revenue has been steadily increasing over the past few quarters, indicating strong growth in its core business operations. - This growth is likely driven by a combination of organic growth, market appreciation, and its strategic acquisitions. - The company's ability to attract and manage assets for its clients is a key driver of its revenue growth. - BlackRock's revenue growth is outpacing the industry average, demonstrating its strong market position and its ability to capitalize on industry trends.
    • Profitability
      • BlackRock's profitability is strong, as evidenced by its high return on assets (ROA), return on equity (ROE), return on total capital (ROTC), and return on invested capital (ROIC).
      • These ratios are all significantly higher than the industry average, indicating that the company is highly efficient in generating profits from its assets and capital.
      • The company's profitability has been steadily improving over the past few quarters, suggesting that its operations are becoming more efficient and its strategic initiatives are contributing to its overall profitability.
    • Liquidity
      • BlackRock's strong cash and short-term investment position indicates a robust liquidity position, enabling the company to meet its short-term obligations and pursue strategic opportunities.
      • The company's strong operating cash flow trends also indicate a healthy short-term liquidity position.
    • Solvency
      • BlackRock's manageable debt levels and strong equity position suggest a solid long-term solvency and financial stability.
      • The company's debt-to-equity ratio and debt-to-EBITDA ratio are both significantly lower than the industry average, indicating a conservative capital structure and a strong ability to service its debt obligations.
    • Operational Efficiency
      • BlackRock's high return on assets and return on equity ratios indicate efficient utilization of its assets to generate revenue.
      • The company has demonstrated its ability to control operating expenses in relation to revenue growth, resulting in improving operating efficiency.
    • Cash Flow Analysis
      • BlackRock's cash flow from operations has been increasing, indicating strong cash flow generation from its core business operations.
      • The company's net operating cash flow has also been increasing, reflecting the strong cash flow generation from its core business operations.
      • The company's free cash flow generation is strong, providing ample capacity for debt repayment, dividend growth, and investments in organic growth opportunities.
      • BlackRock's capital expenditures have been decreasing, suggesting a focus on organic growth and strategic acquisitions rather than significant investments in physical assets.
    • Risk Factors
      • BlackRock faces several risk factors, including market and competition risks, investment performance risks, operational and technology risks, legal, regulatory, and reputational risks, and risks related to integrating and managing acquisitions and strategic investments.
      • The company's strong financial position and its ability to manage risk effectively position it well to navigate these challenges.
    • Future Outlook
      • BlackRock's future outlook is positive, driven by its strong financial performance, its strategic acquisitions, and its ability to manage expenses effectively.
      • The company's revenue growth is expected to continue, driven by its strong market position, its ability to attract and manage assets for its clients, and its strategic acquisitions.
      • Profitability margins are expected to remain stable, reflecting the company's efficient operations and its ability to control expenses.
      • BlackRock's strong cash flow generation provides significant financial flexibility for future investments, acquisitions, or economic downturns.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-08-09)
Financial Select Sector SPDR Fund (XLF)
  • Performance Comparison:
    • BlackRock, Inc. (BLK) has shown mixed performance compared to the Financial Select Sector SPDR Fund (XLF) over various periods. While BLK outperformed XLF in the 1-year and 3-month periods, it underperformed in the YTD, 6-month, 2-year, and 3-year periods. This inconsistency in performance suggests that BLK's returns are not consistently outpacing the broader financial sector.
    • BLK's performance relative to XLF has been particularly weak in the longer-term periods, indicating that it may be struggling to keep up with the broader financial sector's growth.
  • Risk and Return Analysis:
    • BLK's annualized returns have been higher than XLF's in the 1-year period, but lower in the 2-year and 3-year periods. This suggests that BLK may be able to generate higher returns in the short term, but its long-term return potential may be limited.
    • BLK's annualized volatility has been consistently higher than XLF's over the past three years. This indicates that BLK is a riskier investment than XLF, as its price is more likely to fluctuate significantly.
    • BLK's maximum drawdown of 43.9% is significantly higher than XLF's maximum drawdown of 25.81%. This indicates that BLK is more susceptible to significant price declines, further highlighting its riskier nature.
  • Risk-Adjusted Performance:
    • XLF consistently shows a higher Sharpe ratio than BLK over the past three years. This indicates that XLF has better risk-adjusted returns than BLK, meaning that XLF generates higher returns for the level of risk taken.
    • BLK's beta, which is consistently above 1, indicates that it is more sensitive to market movements than XLF. This means that BLK's price is likely to move more dramatically than XLF's in response to market fluctuations, further emphasizing its higher risk profile.
  • Overall Assessment:
    • BLK's performance has been inconsistent compared to XLF, with periods of outperformance and underperformance. While it may offer higher short-term returns, its long-term return potential appears limited.
    • BLK's higher volatility and larger drawdowns indicate a riskier investment profile compared to XLF. Its higher beta suggests that it is more sensitive to market movements, making it a less suitable option for risk-averse investors.
    • While BLK's Sharpe ratio has been trending upwards in recent quarters, it remains lower than XLF's, indicating that XLF offers better risk-adjusted returns.
    • Overall, BLK's higher risk and lower risk-adjusted returns compared to XLF suggest that it may not be the most attractive investment option for investors seeking a balanced portfolio.
Peers Price History(as of 2024-09-04)
Blackstone, Inc. (BX)KKR Group Co., Inc. (KKR)
  • Performance Comparison:
    • BlackRock, Inc. (BLK) has generally underperformed Blackstone, Inc. (BX) and KKR Group Co., Inc. (KKR) over the past three years. This underperformance is particularly evident in the longer time periods, such as the 2-year and 3-year annualized returns. BLK's underperformance could be attributed to its more conservative investment strategies, which may have resulted in lower returns during periods of strong market growth.
    • BLK's performance has been less consistent compared to its peers. While it has outperformed BX in some shorter periods, such as the 1-week and 1-month periods, it has consistently underperformed KKR. This suggests that BLK's investment strategies may be less effective in capturing market opportunities compared to its peers.
  • Risk and Return Analysis:
    • BLK has provided lower annualized returns compared to BX and KKR over the past three years. This is consistent with its more conservative investment approach.
    • BLK has exhibited lower annualized volatility compared to BX and KKR. This suggests that BLK's investment strategies are less susceptible to market fluctuations, resulting in a smoother ride for investors.
    • BLK's maximum drawdown of 43.9% is lower than BX's 49.29% but higher than KKR's 47.92%. This indicates that BLK's risk profile is somewhere in between BX and KKR. While BLK's lower volatility suggests a potentially less risky investment, its higher maximum drawdown suggests that it is not completely immune to market downturns.
  • Risk-Adjusted Performance:
    • BLK's Sharpe ratio has generally been lower than KKR's, indicating that KKR has offered a better risk-adjusted return over the period. However, BLK's Sharpe ratio has been higher than BX's in most periods, suggesting that BLK has been more effective in managing risk and generating returns compared to BX.
    • BLK's beta value of consistently above 1 suggests that it is more volatile than the overall market. However, its beta is lower than BX's, indicating that BLK is less sensitive to market movements than BX. This suggests that BLK may be a slightly less risky investment than BX, but still carries more risk than the overall market.
  • Overall Assessment:
    • BlackRock, Inc. (BLK) has generally underperformed its peers, Blackstone, Inc. (BX) and KKR Group Co., Inc. (KKR), in terms of returns. However, BLK has also exhibited lower volatility and a more conservative risk profile. This suggests that BLK may be a suitable investment for investors seeking a more stable and less risky investment, even if it comes at the cost of lower returns.
    • BLK's lower volatility and longer recovery periods from drawdowns suggest that it may be a more suitable investment for investors with a longer-term investment horizon. However, investors seeking higher returns and are willing to accept higher risk may find BX and KKR more attractive.
    • It is important to note that the analysis is based on historical data and does not guarantee future performance. Investors should conduct their own due diligence and consider their individual investment goals and risk tolerance before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
Blackstone, Inc. (BX)KKR Group Co., Inc. (KKR)
  1. Market Position and Size:
    • BlackRock, Inc. (BLK) is the second largest company in the peer group, with a market capitalization of 131314.0, which is significantly smaller than Blackstone, Inc. (BX) at 168370.0, but larger than KKR Group Co., Inc. (KKR) at 104425.0.
    • BLK's market cap is positively correlated with its revenue, EBITDA, and net income, indicating that the company's size is reflected in its financial performance.
  2. Profitability and Efficiency:
    • BLK exhibits strong profitability, with significantly higher gross profit margin, EBITDA margin, and net profit margin compared to its peers and the industry average.
    • BLK is also highly efficient in generating returns, as evidenced by its significantly higher returns on assets, equity, capital, and invested capital compared to its peers and the industry average.
  3. Financial Health and Stability:
    • BLK has a strong financial health, with a conservative debt strategy and significantly lower debt ratios compared to its peers and the industry average.
    • The company's financial stability is further supported by its strong cash flow generation and ability to generate significant free cash flow.
  4. Valuation and Market Perception:
    • BLK's valuation is relatively attractive compared to its market cap, peer group, and industry standards, with lower valuation metrics such as price-to-earnings and price-to-book.
    • This suggests that the market may be undervaluing the company, potentially presenting an opportunity for investors.
  5. Cash Flow and Capital Management:
    • BLK demonstrates strong cash flow generation, with significantly higher net operating cash flow and free cash flow compared to BX, despite BLK's smaller market cap.
    • The company's capital allocation strategies appear to be focused on improving efficiency and profitability rather than expanding market share, as evidenced by its lower capital expenditures compared to peers.
  6. Growth and Future Prospects:
    • BLK's growth rates are consistently lower than the peer group average in most key metrics, suggesting that the company may be losing market share or struggling to keep up with industry trends.
    • The significant fluctuations in year-over-year growth rates highlight the volatility of BLK's performance and potential challenges in maintaining consistent growth.
    • The deceleration in growth rates over the past few years, as evidenced by the lower 3-year CAGRs compared to 5-year CAGRs, suggests that BLK may be facing headwinds in its core business.
  7. Potential for Investment:
    • BLK is an attractive investment opportunity, given its strong financial position, high profitability, and efficient returns.
    • The company's valuation is also relatively attractive compared to its peers and the industry average.
    • However, investors should be aware of BLK's slower growth rates and the potential for further deceleration in the future.
    • The company's ability to address its growth challenges will be crucial to its long-term performance and investment attractiveness.
  8. Key Risks and Considerations:
    • BLK's slower growth rates and the potential for further deceleration in the future pose a significant risk to investors.
    • The company's ability to address its growth challenges and maintain its competitive position in the industry is crucial to its long-term performance.
    • Investors should also consider the potential impact of external factors, such as economic downturns or regulatory changes, on BLK's business.
  9. Overall Assessment:
    • BLK is a financially strong company with a strong market position, high profitability, and efficient returns.
    • However, the company is facing challenges in maintaining its growth momentum, which could impact its future performance and investment attractiveness.
    • Investors should carefully consider BLK's growth prospects and the potential risks associated with its business before making an investment decision.