$BLK — Blackrock has great upside potential and a growing dividend | Utradea

Valuation: Undervalued

Investment Thesis:

  • Blackrock has solidified themselves as one of the biggest investment managers/firms in the world, and their ability to have consistent growth is unparalleled.
  • Based off of the valuation techniques used in this analysis, I concluded that Blackrock should be valued at $1010/share, which implies an upside of 16%.

Company Overview:

$BLK Stock — Blackrock Inc. is an investment management firm with over $8T worth of assets under their management. Blackrock offers single and multi-asset portfolios that consist of equities, fixed incomes, and other financial instruments to their institutional and retail (individual) clients worldwide.

Investment Information:

Assets Under Management (AUM):

As previously mentioned, Blackrock has over $8T in assets under their management ($8.68T to be exact). What is more impressive than this level of AUM is their growth rate in their AUM. Over the past 5 years, Blackrock has averaged a 5-year CAGR of their AUM of 13%.

This is very important because a company like Blackrock ‘s investment management fees are earned as a percentage of their AUM. So, the larger their AUM, the more revenues they report in their financials, the higher their stock price.

I guarantee that if you have ever looked for ETF to invest in that you have come across one of iShares ETF’s. Blackrock is actually the parent company of iShares, now you might be wondering why I am bringing this up and why it matters.

As of December 31 st,2020, Blackrock had $2.67T of their AUM in iShares ETF’s.

In total, iShares has 386 different ETFs with an average expense ratio of 0.31%.

When we do the math, iShares (owned by Blackrock) made $8.27B just off of the fees involved with owning their ETF’s last year from Blackrock’s clients alone.

This is very important because they are “double-dipping”. By this I mean that Blackrock is charging their own management fees, and then investing that money into a product (iShares ETF) that makes them an additional fee (on top of their original management fee).

Financial Information:

  • Financial Performance (Good): In 2020, Blackrock was able to increase their total revenue 11%, their operating income by 3%, their net income by 10%, and their Assets Under Management (AUM) by 16.8%.
  • Financial Performance (Bad): In 2020, Blackrock’s cost of revenue (total expenses) grew by 17%. The fact that Blackrock’s cost of revenues grew faster than their revenues is not good and contributes to a lower operating margin. This is seen in the decrease in their operating margin from 2019 (38%) to 2020 (35%).
  • Dilution: In 2020, Blackrock only had one stream of share dilution which came from their convertible preferred shares. In 2020, there were 823,188 common shares that were issued due to the conversion of Blackrock’s Series B convertible shares. This share issuance had a dilutionary effect on Blackrock’s existing common shares of 0.5%. Overall, this 0.5% dilution is really nothing to stress over as an investor or potential investor in Blackrock.

$BX Stock — The Blackstone Group: Blackstone is an asset management firm that specializes in real estate, private equity, debt, equity, and multi-asset strategies. Blackstone is also a worldwide fund with operations in North America, Asia, and Europe.

$TROW Stock — T. Rowe Price Group: T Rowe is an investment management firm based out of the USA.T Rowe provides a large selection of financial tools and instruments. T Rowe is also an international fund with operations across North America, Middle East, Europe, and Asia.

$IVZ Stock — Invesco Ltd: Invesco is a investment management firm that offers their services to both individual and institutional clients alike. Invesco invests in a variety of financial instruments and ETF’s. Invesco is also a worldwide fund and has operations in North America, Europe, Australia, Asia, the Middle East, and Africa.

$SEIC Stock — SEI Investments Co: SEI is an asset management holding company that provides a variety of financial services, tools, and instruments to their institutional clients.

Valuation Information:

Through my own WACC model, I found Blackrock’s WACC to be 7.36%, which I used in my DCF model.

CAGR (2021–2026):

I found the average analysts revenue growth projection over the next 5 years to be a CAGR of 13.4%. I used this growth rate in the specified years. This makes sense and is closely related to Blackrock’s AUM growth rate.

I estimated Blackrock’s CAGR after 2026 to be 7%, I see this growth rate as reasonable therefore I decided to use it.

Operating Expense Increase Rate:

Over the past couple of years, Blackrock’s operating expenses have grown at an average of 7.87% every year. I decided to use this same growth rate moving forward.

Interest Expense Increase Rate:

Over the past couple of years, Blackrock has experienced an interest expense growth of 5.33% per year. I decided to use this 5.33% growth rate to forecast Blackrock’s future interest expense growth.

Depreciation & Amortization Decrease Rate:

Over the past couple of years, BlackRock has been able to consistently decrease their depreciation/amortization figures despite having increases in their revenues/profits. Over the past couple of years, Blackrock has been able to decrease this figure at a rate of 14.26%, which I used to forecast future decreases.

I was able to find Blackrock’s effective tax rate for the year 2020 to be 20.1%. I was able to find this through their SEC 10-K filing. I used this tax rate throughout my model.

CAPEX Decrease Rate:

Over the past couple of years, Blackrock has been able to decrease their capital expenditures by an average of 2.5%/year. I used this to forecast future decreases in their CAPEX.

Risk Free Rate:

I was able to find Blackrock’s risk-free rate through a website called Finbox, who estimated it to be 2.25%

Investment Valuation:

In order to value Blackrock’s stock ($BLK), I decided to undergo a DCF model. In order to complete this model, I used the information found above in the “valuation information” section of this report. My DCF model estimates the fair price of Blackrock to be $1,103/share, which would imply an upside of 26%. However, this estimate seems a little bit high, so I decided to do some comparable analyses to either support or disprove the DCF valuation.

I compared Blackrock’s P/B ratio to their competitors (listed above in the “competitor information” section of this report). I did this because it is very common to value finance and financial services businesses through their P/B ratio since they have a lot of assets in their book value. By doing this I arrived at a fair price of Blackrock of $1130/share which implies an upside of 29%.

By comparing Blackrock’s P/E ratio to that of their competition, I found that Blackrock’s fair value should be around $799/share, which would imply a downside risk of 8.5%.

By comparing Blackrock’s EV/EBITDA multiple to that of their competitors, I found Blackrock’s fair value to be $641/share, which would imply a downside risk to this investment of 27%. As you have probably noticed, these valuations vary a lot and as a result of this I decided to take a weighted average of these 3 results to boil it down to one comparable valuation.

Weighted Average Comparable:

To carry out this comparable, I weighed the P/B valuation to be 50%, and the P/E and EV/EBITDA ratios to be split equally, each being weighted as 25%. I chose this split due to the importance of the P/B ratio when valuing financial businesses. By doing this, I arrived at a comparable analysis valuation of $925/share, which implies that Blackrock is undervalued by 6%.

Dividend Discount Model:

I was not able to undergo a dividend discount model due to the growth rate of Backrock’s dividends compared to their WACC.

This is both good and bad. Firstly, it is good for investors as they can expect Blackrock’s dividend to keep growing with their stock in the future. However, it is bad for me because I cannot use this model to further validate/invalidate my valuation.


Buying Blackrock under $900/share helps to limit the downside risk of this investment, while still guaranteeing a good return.

Therefore, I see buying Blackrock under $900 as a good buy.

I would then look to sell a position around the $1010/share mark.

If you were to enter at current prices ($873) and sell for $1010/share, there would be a total upside to this investment of 16%.


  • Financial Performance: If Blackrock has a bad financial performance, it might spook both their clients and investors, which could have adverse effects on their share price. Additionally, if Blackrock is not able to meet their expected growth targets, some investors may sell off due to their valuation.
  • Market Conditions: By nature, Blackrock will perform poorly under poor market condition. This is kind of the same for every stock, however more so for Blackrock as they are an investment firm.


  • Financial Performance: The biggest catalyst for Blackrock is their financial performance since they are an asset management firm. If they can continually post great financials investors will have increased confidence in their abilities as a company.

Originally published at https://utradea.com.



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