Thematic evaluation
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Blackstone, Inc. (BX)

October 10, 2024

Compared to: Blackrock Finance, Inc. (BLK) | KKR Group Co., Inc. (KKR) | Financial Select Sector SPDR Fund (XLF)

Our reasoning

Blackstone's current valuation appears fair, balancing its strong market position, growth prospects, and financial performance against its higher risk profile and potential regulatory challenges. The company's valuation multiples are in line with or slightly below industry peers, reflecting its leadership position in alternative asset management and potential for growth in areas like AI infrastructure and private wealth management.

Key takeaways
  • Blackstone is a leading global alternative asset manager with a diversified business model across real estate, private equity, credit, and hedge fund strategies.
  • The company has a strong track record of financial performance, growth, and innovation, with a focus on expanding its perpetual product offerings and investing in AI infrastructure.
  • BX's profitability is strong and has been improving in recent quarters, driven by operational efficiencies and a favorable market environment.
  • The company's cash flow generation is strong, as evidenced by its high Net Operating Cash Flow.
  • BX's liquidity position appears to be weakening, as evidenced by the declining trend in the Net Operating Cash Flow.
  • The company's financial leverage is high, as evidenced by its high Total Debt to Total Equity Ratio.
  • BX's asset utilization efficiency appears to be improving, as evidenced by the increasing trend in the Return on Average Assets.
  • BX's future prospects appear to be positive, as evidenced by its strong revenue growth, profitability, and cash flow generation.
  • The company's strategic initiatives, such as its investments in AI infrastructure and its expansion of its perpetual product offerings, are likely to drive future growth.
  • BX's ability to manage its debt levels and maintain a strong liquidity position will be critical to its future success.
Fairly valued
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Evaluation summary

  1. Company Overview:

    • Blackstone, Inc. (BX) is a leading global alternative asset manager with a diversified business model across real estate, private equity, credit, and hedge fund strategies. The company generates revenue primarily from management and advisory fees, incentive fees, and investment returns on its own principal investments.
    • BX's core products and services include real estate investment funds, private equity funds, credit funds, and hedge fund solutions. The company targets institutional investors, high-net-worth individuals, and family offices.
    • BX operates in a highly competitive landscape, facing competition from other large investment firms, private equity firms, hedge funds, and asset managers. The company's competitive advantage lies in its strong brand recognition, global reach, and experienced management team.
    • For comparative analysis, we will be using BlackRock, Inc. (BLK) and KKR Group Co., Inc. (KKR) as industry peers and the Financial Select Sector SPDR Fund (XLF) as a benchmark.

  2. Financial Performance:

    • BX has demonstrated strong revenue growth in recent years, driven by its strong investment activity and its expansion of its perpetual product offerings. The company's revenue growth is significantly higher than the industry average, indicating its strong competitive position.
    • BX's profitability is strong, as evidenced by its high Return on Average Assets (ROA), Return on Average Total Equity (ROE), and Return on Average Total Capital (ROIC). The company's profitability has been improving in recent quarters, as evidenced by the increasing trends in these ratios.
    • BX's profitability is significantly higher than the industry average, indicating its strong competitive position. However, BX's profitability has been impacted by a decline in fee-related performance revenues in the real estate segment, including from BREIT.
    • BX's financial leverage is high, as evidenced by its high Total Debt to Total Equity Ratio. The company's debt levels have been decreasing, which is a positive sign for its long-term solvency. However, BX's debt levels are higher than the industry average, indicating a more aggressive financing strategy.
    • BX's performance has generally underperformed BLK and KKR over the period, particularly in the longer timeframes. However, BX has outperformed BLK in the 3-year and 2-year periods. BX's performance has been less consistent than BLK and KKR, with periods of both outperformance and underperformance.

  3. Operational Efficiency:

    • BX's asset utilization efficiency appears to be improving, as evidenced by the increasing trend in the Return on Average Assets (ROA). The company's asset utilization efficiency is significantly higher than the industry average, indicating its strong operational efficiency.
    • BX's cash flow generation is strong, as evidenced by its high Net Operating Cash Flow. The company's cash flow generation is significantly higher than the industry average, indicating its strong ability to generate cash from its operations.
    • BX's liquidity position appears to be weakening, as evidenced by the declining trend in the Net Operating Cash Flow. The company's liquidity position is not available in the provided financial statements.
    • BX's working capital management appears to be efficient, with a strong current ratio and quick ratio. However, the company's working capital has been fluctuating in recent quarters, indicating potential inefficiencies.
    • BX's capital expenditure analysis shows a declining trend in recent quarters, indicating a focus on organic growth and efficiency. The company's depreciation trends are consistent with its capital expenditure patterns.
    • BX's dividend and share repurchase sustainability analysis indicates a strong track record of returning capital to shareholders. The company's dividend payout ratio is sustainable, and its share repurchase program has been active in recent years.
    • BX's debt-to-equity and leverage ratio trend analyses show a declining trend in recent quarters, indicating a focus on reducing leverage and improving financial stability.

  4. Growth Opportunities:

    • BX is expanding its perpetual product offerings in the private wealth channel, including plans for an infrastructure fund and a credit-focused vehicle. The company is also positioning itself to be the largest financial investor in AI infrastructure, with $55 billion in data centers and a $70 billion pipeline.
    • BX's strategic initiatives, such as its investments in AI infrastructure and its expansion of its perpetual product offerings, are likely to drive future growth. The company's ability to manage its debt levels and maintain a strong liquidity position will be critical to its future success.
    • BX's management team has demonstrated a strong track record of identifying and capitalizing on key industry trends. The company's foresight in identifying and capitalizing on key trends, such as the shift to logistics, rental housing, and data centers in real estate, has been a key driver of its success.
    • BX's capital allocation strategies are aligned with its long-term growth objectives. The company has a history of making strategic investments in high-growth areas, such as AI infrastructure and private wealth management.

  5. Risks and Threats:

    • BX's increasing focus on individual investor products could expose it to new levels of risk. The company's leverage and borrowings could pose a risk to its financial stability. Potential legal and regulatory changes could adversely affect Blackstone's business.
    • BX is involved in several ongoing legal proceedings related to investments made by the Kentucky Retirement System, including a derivative lawsuit and a separate action filed by the state's Attorney General. The company received an information request from the SEC related to the retention of certain electronic business communications.
    • BX's business is subject to market volatility and economic conditions that could negatively impact the performance of its investment funds and strategies. The company's performance is also sensitive to interest rate changes and regulatory changes.
    • BX faces competition from other large investment firms, private equity firms, hedge funds, and asset managers. The company's ability to maintain its competitive advantage will depend on its ability to attract and retain talent, innovate, and adapt to changing market conditions.

  6. Valuation Analysis:

    • BX's valuation metrics, such as its P/E ratio and EV/EBITDA ratio, are in line with its industry peers. The company's valuation is supported by its strong financial performance, growth prospects, and experienced management team.
    • BX's valuation is also influenced by its high debt levels and its exposure to market volatility. The company's valuation is likely to be sensitive to changes in interest rates, economic conditions, and regulatory changes.
    • BX's valuation is expected to be driven by its ability to continue to grow its assets under management, generate strong returns for its investors, and maintain its competitive advantage in the alternative asset management industry.

  7. Price Performance:

    • BX's price performance has been volatile in recent years, reflecting the cyclical nature of the alternative asset management industry. The company's price performance has been influenced by factors such as market volatility, interest rate changes, and regulatory changes.
    • BX's price performance has generally underperformed BLK and KKR over the period, particularly in the longer timeframes. However, BX has outperformed BLK in the 3-year and 2-year periods. BX's price performance has been less consistent than BLK and KKR, with periods of both outperformance and underperformance.
    • BX's price performance has been more volatile than XLF, indicating a higher risk profile. The company's beta value has been consistently higher than BLK and KKR, indicating that BX is more sensitive to market movements.

  8. Future Outlook:

    • BX's management team is optimistic about the company's future prospects, citing powerful structural tailwinds and multiple engines of growth. The company expects the Fed to begin cutting interest rates later this year, which should be positive for asset values and realizations.
    • BX's future performance is expected to be driven by its ability to continue to grow its assets under management, generate strong returns for its investors, and maintain its competitive advantage in the alternative asset management industry. The company's ability to manage its debt levels and maintain a strong liquidity position will be critical to its future success.
    • BX's future performance is also subject to risks such as market volatility, economic conditions, regulatory changes, and legal proceedings. The company's ability to navigate these risks will be critical to its future success.

  9. Summary:

    • BX is a leading global alternative asset manager with a diversified business model across real estate, private equity, credit, and hedge fund strategies. The company has a strong track record of financial performance, growth, and innovation.
    • BX's strengths include its strong brand recognition, global reach, experienced management team, and strong cash flow generation. The company's weaknesses include its high debt levels, exposure to market volatility, and potential legal and regulatory risks.
    • BX's opportunities include its expansion of its perpetual product offerings, its investments in AI infrastructure, and its ability to capitalize on favorable market trends. The company's threats include competition from other large investment firms, market volatility, economic conditions, regulatory changes, and legal proceedings.
    • BX's valuation is in line with its industry peers, but its high debt levels and exposure to market volatility could impact its valuation. The company's future performance is expected to be driven by its ability to continue to grow its assets under management, generate strong returns for its investors, and maintain its competitive advantage in the alternative asset management industry.
    • BX's price performance has been volatile in recent years, reflecting the cyclical nature of the alternative asset management industry. The company's price performance has been influenced by factors such as market volatility, interest rate changes, and regulatory changes.
    • BX's future outlook is positive, but the company faces risks such as market volatility, economic conditions, regulatory changes, and legal proceedings. The company's ability to navigate these risks will be critical to its future success.
Peer fundamentals 
Fundamentals
Insights
  • Blackstone is a leading global alternative asset manager with a diversified business model across real estate, private equity, credit, and hedge fund strategies.
  • The company's focus on growing its Perpetual Capital strategies, such as BREIT and BCRED, has been a key driver of assets under management and fee-earning assets.
  • Blackstone's profitability is strong and has been improving in recent quarters, driven by operational efficiencies and a favorable market environment.
  • The company's cash flow generation is strong, as evidenced by its high Net Operating Cash Flow.
  • Blackstone's liquidity position appears to be weakening, as evidenced by the declining trend in the Net Operating Cash Flow.
  • The company's financial leverage is high, as evidenced by its high Total Debt to Total Equity Ratio.
  • Blackstone's asset utilization efficiency appears to be improving, as evidenced by the increasing trend in the Return on Average Assets.
  • Blackstone's future prospects appear to be positive, as evidenced by its strong revenue growth, profitability, and cash flow generation.
  • The company's strategic initiatives, such as its investments in AI infrastructure and its expansion of its perpetual product offerings, are likely to drive future growth.
  • Blackstone's ability to manage its debt levels and maintain a strong liquidity position will be critical to its future success.
Analysis
  • Revenue - Blackstone's revenue growth is driven by its strong investment activity and its expansion of its perpetual product offerings. - The company's revenue growth is significantly higher than the industry average, indicating its strong competitive position. - Blackstone's revenue growth is not sustainable, as evidenced by the declining trend in the 5-Year CAGR.
    • Profitability
      • Blackstone's profitability is strong, as evidenced by its high Return on Average Assets, Return on Average Total Equity, and Return on Average Total Capital.
      • The company's profitability has been improving in recent quarters, as evidenced by the increasing trends in these ratios.
      • Blackstone's profitability is significantly higher than the industry average, indicating its strong competitive position.
    • Liquidity
      • Blackstone's liquidity position appears to be weakening, as evidenced by the declining trend in the Net Operating Cash Flow.
      • The company's liquidity position is not available in the provided financial statements.
    • Solvency
      • Blackstone's financial leverage is high, as evidenced by its high Total Debt to Total Equity Ratio.
      • The company's debt levels have been decreasing, which is a positive sign for its long-term solvency.
      • Blackstone's debt levels are higher than the industry average, indicating a more aggressive financing strategy.
    • Operational Efficiency
      • Blackstone's asset utilization efficiency appears to be improving, as evidenced by the increasing trend in the Return on Average Assets.
      • The company's asset utilization efficiency is significantly higher than the industry average, indicating its strong operational efficiency.
    • Cash Flow Analysis
      • Blackstone's cash flow generation is strong, as evidenced by its high Net Operating Cash Flow.
      • The company's cash flow generation is significantly higher than the industry average, indicating its strong ability to generate cash from its operations.
      • Blackstone's cash flow generation is not sustainable, as evidenced by the declining trend in the 5-Year CAGR.
    • Risk Factors
      • Blackstone's increasing focus on individual investor products could expose it to new levels of risk.
      • The company's leverage and borrowings could pose a risk to its financial stability.
      • Potential legal and regulatory changes could adversely affect Blackstone's business.
    • Future Outlook
      • Blackstone's future prospects appear to be positive, as evidenced by its strong revenue growth, profitability, and cash flow generation.
      • The company's strategic initiatives, such as its investments in AI infrastructure and its expansion of its perpetual product offerings, are likely to drive future growth.
      • Blackstone's ability to manage its debt levels and maintain a strong liquidity position will be critical to its future success.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-10-09)
Financial Select Sector SPDR Fund (XLF)
  • Performance Comparison:
    • BX has generally outperformed XLF over the long term, with notable periods of outperformance in the 2-year and 3-year periods. However, BX has underperformed XLF in the short term, particularly in the YTD and 1-week periods.
    • BX's performance relative to XLF has been inconsistent, with periods of both outperformance and underperformance. This suggests that BX's performance is influenced by factors beyond the broader financial sector.
  • Risk and Return Analysis:
    • BX has generated higher annualized returns than XLF over the analyzed periods. However, this higher return comes with a higher level of risk.
    • BX has consistently exhibited higher annualized volatility than XLF, indicating a greater degree of price fluctuations. This suggests that BX is a more volatile investment than XLF.
    • BX has experienced significantly larger maximum drawdowns than XLF, indicating a higher risk profile. This suggests that BX is more susceptible to market downturns and may take longer to recover from corrections.
  • Risk-Adjusted Performance:
    • BX's Sharpe Ratio has generally been lower than XLF's, indicating that BX's risk-adjusted returns have been less favorable. This suggests that XLF may offer a better balance between risk and return.
    • BX's beta value consistently exceeds 1, indicating that it is more sensitive to market movements than XLF. This suggests that BX is a more volatile investment and may experience larger price swings during market fluctuations.
  • Overall Assessment:
    • BX has demonstrated strong long-term performance, outperforming XLF over the 2-year and 3-year periods. However, its higher volatility and larger drawdowns suggest a higher risk profile.
    • BX's risk-adjusted returns have been less favorable than XLF's, as indicated by its lower Sharpe Ratio.
    • BX's higher beta indicates that it is more sensitive to market movements, making it a potentially riskier investment for investors seeking a more stable portfolio.
    • Investors considering BX should carefully assess their risk tolerance and investment goals. While BX has the potential for higher returns, it also carries a higher level of risk.
Peers Price History(as of 2024-10-09)
Blackrock Finance, Inc. (BLK)KKR Group Co., Inc. (KKR)
  • Performance Comparison:
    • BX has generally underperformed BLK and KKR over the period, particularly in the longer timeframes. However, BX has outperformed BLK in the 3-year and 2-year periods.
    • BX's performance has been less consistent than BLK and KKR, with periods of both outperformance and underperformance.
  • Risk and Return Analysis:
    • BX has provided lower annualized returns than KKR in all periods, but has outperformed BLK in the 3-year period.
    • BX has exhibited higher annualized volatility than BLK and KKR, indicating a greater degree of price fluctuations.
    • BX's maximum drawdown has been larger than BLK and KKR, indicating a higher risk profile.
  • Risk-Adjusted Performance:
    • BX's Sharpe Ratio has generally been lower than BLK and KKR, suggesting that BX has not consistently delivered better risk-adjusted returns.
    • BX's beta value has been consistently higher than BLK and KKR, indicating that BX is more sensitive to market movements.
  • Overall Assessment:
    • BX has generally underperformed BLK and KKR in terms of both absolute and risk-adjusted returns.
    • BX has exhibited higher volatility and larger drawdowns than BLK and KKR, indicating a higher risk profile.
    • BX's higher beta suggests that it is more sensitive to market movements than BLK and KKR.
    • Investors seeking higher returns may consider KKR, while investors seeking lower risk may consider BLK.
    • BX's recent performance has been improving, but it remains to be seen if this trend will continue.
Peers Fundamentals(as of 2024-06-30)
Blackrock Finance, Inc. (BLK)KKR Group Co., Inc. (KKR)

  1. Market Position and Size:

    • BX is the largest company in the peer group with a market cap of 168370.0 million, significantly larger than BLK (131314.0 million) and KKR (104425.0 million).
    • Despite its larger market cap, BX has the lowest revenue and net income compared to its peers, suggesting that the market may be valuing BX based on factors beyond its current financial performance.
    • BX's dominant market position indicates a significant influence within the investment management industry.

  2. Profitability and Efficiency:

    • BX exhibits significantly higher gross profit margin, EBITDA margin, and net profit margin compared to both its peers and the industry average.
    • BX's high profitability metrics demonstrate its ability to generate strong profits despite its relatively lower revenue.
    • BX's high ROTE and ROTC indicate its ability to generate strong returns on its equity and capital investments.

  3. Financial Health and Stability:

    • BX's high debt levels, particularly compared to its peers, raise concerns about its financial stability.
    • However, its relatively low debt/EBITDA ratio suggests that BX's earnings are sufficient to cover its debt obligations.
    • BX's balance sheet structure, with its high debt levels and lower cash reserves, suggests a more aggressive financial strategy compared to its peers.

  4. Valuation and Market Perception:

    • BX's valuation metrics are significantly higher than its peers and the industry average, suggesting that the market is placing a premium on its future growth prospects, brand recognition, and management team.
    • However, these high valuations also raise concerns about potential overvaluation and the sustainability of its current growth trajectory.

  5. Cash Flow and Capital Management:

    • BX's cash flow generation strength is relatively weak compared to its size, peers, and industry norms.
    • Its lower net operating cash flow and free cash flow suggest that BX may be less efficient in converting its earnings into cash flow.

  6. Growth and Future Prospect:

    • BX's revenue growth has been consistently lower than the peer group average over the past five years, indicating that it may be losing ground in the market.
    • However, BX's EBITDA growth has been consistently higher than the peer group average, demonstrating its ability to manage costs and generate profits despite its slower revenue growth.
    • BX's growth profile is unbalanced, with strong growth in EBITDA and free cash flow but weaker growth in revenue and net income.

  7. Potential for Investment:

    • BX presents a mixed investment perspective. Its strong profitability, efficient operations, and dominant market position make it an attractive investment.
    • However, its lower revenue growth, high debt levels, and lower earnings per share raise concerns about its future growth potential and financial stability.

  8. Key Risks and Considerations:

    • BX's high debt levels and lower cash reserves raise concerns about its financial stability and ability to weather economic downturns.
    • BX's lower revenue growth compared to its peers indicates that it may be facing challenges in maintaining its market share and competitive position.

  9. Overall Assessment:

    • BX is a financially strong company with high profitability and efficient operations. However, its high debt levels and lower revenue growth raise concerns about its future growth potential and financial stability.
    • Investors should carefully consider these factors before making an investment decision.