Macquarie Capital (USA) Inc, in its recent equities research report upgraded BlackRock, Inc. (NYSE:BLK) from Neutral to Outperform.
Macquarie (USA) believes BlackRock, Inc. (NYSE:BLK) has strength in multiple areas, such as industry flow, the ETF craze bandwagon and a solid dividend yield.
The publicly owned investment manager BlackRock, Inc. (NYSE:BLK) primarily provides its services to institutional, intermediary, and individual investors.
Macquarie (USA) estimates a 12-month target price of $315 for BlackRock, using DCF valuation methodology.
Macquarie (USA) feels BlackRock, Inc. (NYSE:BLK) stands as one of the best dividend growth plays in the financial sector.
Macquarie (USA) considers the strong macro flows coupled with strong ETF growth would augur well for BlackRock’s success. Since the beginning of 2013, the industry has seen three consecutive months of strong inflows with the largest 3-month inflow seen since 2007.
Investors are showing increasing interest in passive strategy by keeping more faith on the ETF route. While 43 percent of the flows continue into bonds, equity flows accounted for 41 percent growth, with hybrid garnering 16 percent. Incidentally BLK is one of the major beneficiaries of the ETF growth.
The following diagrams highlight the top 40 ETF flows:
With the strong ETF recovery in place, Macquarie (USA) feels BLK will post 3-year average NNA growth of 5.6 percent, surpassing BEN’s 4.8 but below TROW’s 5.9 percent. This would justify higher premium multiple that BlackRock currently commands over BEN.
According to Macquarie (USA), the over 5 percent return of market cap in each of the past two years acts as the icing on the cake for BlackRock, Inc. (NYSE:BLK). The investment manager posted 5.7 percent and 5 percent of its market cap through dividends and share repurchases in 2011 and 2012 respectively.
BlackRock stock not only pays out a robust current dividend of 2.4 percent but the company has also demonstrated a commitment to increasing the dividend consistently. Since 2003, BlackRock has maintained or grown its dividend every year and posted an annual CAGR of 35 percent over this time.
Macquarie (USA) feels with strong second quarter 2013 earnings coupled with strong net new flows, BlackRock, Inc. (NYSE:BLK) stock would catapult to a 12-month price target of US$315.
Macquarie (USA) concludes that BlackRock, Inc. (NYSE:BLK) is in the early innings of an ETF evolution. It feels BlackRock will see outsized EPS benefit as the trend continues and spread out to other categories such as FI ETF’s.