Highlights

• iShares Bitcoin Trust ETF has attracted nearly half of the spot Bitcoin ETF inflows.
• Acquisition of GIP opens access to lucrative prospects in the growing $1 trillion infrastructure market.
• The stock recommendation is a “Buy”.

Overview

BlackRock, Inc. is a leading investment management firm that offers a range of products, including single- and multi-asset portfolios in equities, fixed income, alternatives, and money market instruments. These products are available through various vehicles, including mutual funds, iShares™, and BlackRock ETFs. Additionally, BlackRock provides technology services, such as Aladdin™, Aladdin Wealth, eFront, and Cachematrix, along with advisory services to institutional and wealth management clients.

Diverse Development in the Direction of the Cryptocurrency World and Infrastructure Projects

The revenues of BlackRock have increased by almost 75.43% over the last ten years, reaching $17 859 million in 2023. During the same period, the earnings per share (EPS) dramatically rose by 116.42%, reaching $36.51 per share in 2023. The primary source of the company’s revenue is investment advisory and administration fees, constituting 77% of the total revenue in 2023.

BlackRock has effectively diversified its client base, encompassing a broad spectrum including wealth management, pension plans, and insurance companies as its major constituents. The company delivers investment management services and funds to both institutional and retail clients, utilizing various investment vehicles such as mutual funds, exchange-traded funds, and others. In addition to its core money management activities, BlackRock extends its offerings to include risk management and technology services, providing a complement to its more conventional operations. Distribution is facilitated through multiple channels, including financial advisors, pension consultants, third-party distribution relationships, and direct sales efforts.

BlackRock stands as the world’s largest asset management company, boasting approximately $10 trillion in assets under management (AuM) as of the close of 2023. The increasing popularity of passive investing has fueled a significant surge in AuM allocated to ETFs or index funds, overshadowing active funds. Generally, the majority of the traditional asset management sector struggles to outperform investment benchmarks, net of fees, over extended periods. Consequently, investors are progressively reallocating their investments to more cost-effective alternatives. BlackRock, with a remarkable 425 ETFs available and over $2.5 trillion in AuM in the U.S., surpasses its competitor Vanguard, while other players in the ETF industry lag behind in size. This positions BlackRock with a distinct competitive advantage, especially considering the sustained trend towards passive investing anticipated in the foreseeable future, auguring well for its growth prospects.

According to GuruFocus, BLK demonstrates strong performance among asset management companies. The company achieves a commendable Return on Equity (ROE) at 14.52%, surpassing that of 83.87% of companies in the industry. While other profitability margins may not appear as impressive, the company utilizes two methods to distribute funds among shareholders: dividends and buybacks. In 2023, BlackRock returned $4.5 billion to its shareholders, with $3 billion through dividends and $1.5 billion through buybacks. In 2022, the company returned $4.9 billion. Despite the profitability indicators of BlackRock not appearing particularly exceptional, the company holds a high 9/10 profitability rank according to GuruFocus.

BlackRock has introduced an iShares Bitcoin Trust ETF, which has attracted nearly half of the spot Bitcoin ETF inflows, amounting to $560 million in the first seven days. The investment landscape underwent a significant shift on January 11th, 2024, with the introduction of tradable spot Bitcoin ETFs in the market. Bitcoin ETFs hold the promise of broadening cryptocurrency accessibility for mainstream investors, potentially attracting trillions in investment dollars for Bitcoin ETFs and any subsequent crypto funds. These ETFs provide a new avenue for portfolio diversification, catering to a wide range of investors who may have previously avoided this financial asset due to concerns about fraud, limited legal protection, and regulatory restrictions. Notably, Bitcoin ETFs enhance accessibility for U.S. retirement accounts, which, with an estimated value of $35.7 trillion, have historically steered clear of cryptocurrency investments due to regulatory constraints and perceived risks. The introduction of Bitcoin ETFs also contributes to increased transparency in the Bitcoin market, benefiting both retail and institutional investors. Looking ahead, the inclusion of additional cryptocurrencies in the realm of ETFs seems plausible. As of January 24, 2024, the global cryptocurrency market cap is estimated at $1.64 trillion.

Moreover, BlackRock targets an infrastructure market. BlackRock’s acquisition of private-equity fund manager Global Infrastructure Partners (GIP) is motivated by the lucrative prospects in the growing $1 trillion infrastructure market. With a focus on long-term investment opportunities, the merger aims to establish a market-leading infrastructure platform, boasting over $150 billion in combined client assets across equity, debt, and solutions. The deal seeks to enhance deal flow and co-investment opportunities by leveraging BlackRock’s global corporate relationships alongside GIP’s proprietary origination and business improvement capabilities. Importantly, the transaction ensures leadership continuity, with GIP’s management team continuing at the helm, fostering a seamless integration and ongoing commitment to clients. The synergy between GIP’s expertise in infrastructure and BlackRock’s extensive network positions the combined entity to deliver top-tier investment opportunities globally. BlackRock envisions leveraging its $50 billion infrastructure client AUM to lead strategic investments, capitalizing on the stable cashflows and inflation-hedging benefits of long-term infrastructure projects. The financial terms involve a $3 billion cash consideration and approximately 12 million shares of BlackRock common stock, structured to enhance BlackRock’s as-adjusted earnings per share and operating margin in the first full year post-close. Ultimately, the acquisition aims to create a powerful and diversified infrastructure investment firm.

DCF Estimates $926 BLK Stock Forecast

The DCF analysis indicates that BLK’s target stock price should reach around $926.59 by the end of 2024. This anticipated share price reflects a 16.7% upside from the January 22^nd price. The forecast is grounded in average data from previous years, the company’s policy direction, and macroeconomic expectations.

I have made the following assumptions and estimations for the model:

• The growth rate of money distribution to shareholders is 5.11% for 2024-2028 which is a geometry mean for the last 10 years
• The long-term growth rate is 3.33 according to the company ROE and retention ratio for the last 10 years
• Beta is 1.37 is calculated by five years monthly logarithm return
• The risk-free rate is 4.15%
• The risk premium is 2.15% based on the average implied premium for the DDM from 2013 to 2023

According to the valuation, the fair stock price for today should be $894.89, corresponding to the current market price of $794.02 on January 22^nd, 2024. The estimated prices for the end of 2024 and 2025 are $926.59 and $958.91, respectively. Thus, we can conclude that the stock is undervalued by the market, and our recommendation for investors is to buy.

Relative Valuation

Let’s examine the next comparable companies: BN, BK, AMP, KKR, and BX. The price-to-sales (P/S) and price-to-cash flow ratios for BLK are 6.73 and 28.89, respectively, which are higher compared to the average numbers. Conversely, the price-to-earnings and price-to-book ratios of 22.06 and 3.11 are lower than the average figures as of January 22, 2024.

Based on the information above, BlackRock’s estimated stock price falls within the range of $304.65 to $1473.10. This range gives us a target BLK stock price of $828.96, which is higher than the current price of $794.02 on January 22^nd, 2024.

There is additional evidence supporting the view that BlackRock’s price will likely exhibit a positive trend in the future, making it a good choice for investors to consider buying this stock.

BLK Stock Forecast: What are Other Analysts Saying?

Based on data sourced from Yahoo Finance, the analyst consensus aligns with the valuation. The overwhelming majority of analysts rated the stock as Buy (60%) or Strong Buy (20%), with the remaining analysts (20%) ranking the stock as Hold, and the average price target is $914.92.

Conclusion

BlackRock, Inc. is a leading investment management firm that aims to secure a dominant position in the spot Bitcoin ETF market. Moreover, the acquisition of Global Infrastructure Partners opens access to lucrative prospects in the growing $1 trillion infrastructure market. According to our valuations, we take a buy position in BLK stock.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the BLK stock forecast. 

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