BMO Capital Markets’ David J. Chiaverini and Richard Fellinger co-authored a research report on BlackRock, Inc. (NYSE:BLK) published today, May 14th. The analysts offer a bullish thesis for BlackRock and argue the firm’s multi-prong strategy leaves it well-positioned in profitable niches in today’s uncertain economic environment.
Chiaverini and Fellinger rate BlackRock, Inc. (NYSE:BLK) as Outperform, with a price target of $355.
Leveraged for growth in retail brokerage sector
The first leg of Chiaverini and Fellinger’s bull case for is that the “opportunity in retail is significant and BlackRock is well positioned to maintain its momentum in this business.” They argue retail net new asset growth was 12% annualized in 1Q14, up solidly from 10% in 2013, and a major increase from 3% in 2012.
The report also highlights that BlackRock, Inc. (NYSE:BLK)’s market share in mutual funds is currently less than 2%, its market share with the wirehouse brokers, ex- Merrill Lynch, is close to 3%, and its market share with RIAs is under 1%.
The BMO analysts suggest that BlackRock, Inc. (NYSE:BLK) will continue to expand in this profitable sector. “We believe a reasonable goal for the company would be getting to about 5% market share within each of these channels in the next five years, which would roughly double its retail AUM. Even though retail represents only 12% of BLK’s AUM, its revenue contribution is significant at 35%, which implies that continued momentum in this business should lead to meaningful revenue and EPS growth…”
BlackRock: Strong passive income
Chiaverini and Fellinger also point out that BlackRock, Inc. (NYSE:BLK)’ s strength in passives (65% of AUM) “continues to be a differentiator”. The analysts also said the outlook for continued passive income growth remains favorable as “secular trends in the RIA market provide a tailwind for ETF flows.”
Momentum in liability-driven investment
Another leg of the analysts’ bull thesis on BlackRock, Inc. (NYSE:BLK) is that liability-driven investing is continuing to gain momentum as pension plans have become better funded following a strong equity market. This kind of insitutional portfolio rebalancing toward fixed income strategies is right up BlackRock’s alley given its solid historical performance and broad range of products.
Anticipate prudent dividends and buybacks
Chiaverini and Fellinger also offer an endorsement of BlackRock’s experienced, conservative management. “We expect BLK to remain prudent with its dividend and buyback levels until the regulatory environment becomes clearer.”
Asia could be key driver
The BMO analysts also highlight that Asia could be a key driver for BlackRock, Inc. (NYSE:BLK) over the next couple of years. BlackRock had $330 billion in long-term AsiaPpacific AUM as of the end of March. The report also notes the firm has 2,000 employees in Asia and is “competing to be a local player there to leverage all the strengths of the BlackRock platform in the region.”