2023-04-11 10:32:23 ET
Summary
- Q1 earnings season lights up on Friday when a host of big financial sector firms report.
- There's currently low implied volatility in BLK, and I see the stock has near fair value.
- With a long-term bottom building, there are clear signs of a bullish breakout.
Here we are. The first quarter earnings season is underway. FactSet reported that 19 of 20 SPX firms that have reported so far have beaten bottom-line expectations, but larger players issue results Friday.
BlackRock, a major asset manager, looks fairly valued in my view, and it deserves a premium valuation compared to its sector. With a neutral chart in the near term, I have a hold on the company for now.
Earnings Party About To Get Started
According to Bank of America Global Research, BlackRock ( BLK ) is considered the largest asset manager in the world with more than $9Tn in assets under management. Its acquisitions of Merrill Lynch Investment Management and iShares transformed it from a fixed income focused investment firm into a diversified manager with scaled distribution. It has leading and/or early mover franchises in ETFs, institutional fixed income, multi-asset, technology solutions, ESG, and direct indexing with a large alternatives business.
The New York-based $99 billion market cap Asset Management and Custody Banks industry company within the Financials sector trades at a near-market 19.4 trailing 12-month GAAP price-to-earnings ratio and pays a somewhat high 3.0% dividend yield, according to The Wall Street Journal.
BlackRock has robust growth trends with its alternative asset business as well as its broader fixed income and ETF divisions. Still, that secular growth outlook is not enough to keep EPS positive on a YoY basis. The firm gained flows over its competitors in 2022. Back in January , BLK reported a drop in per-share profits from the same period a year ago, but that topped estimates.
On valuation , analysts at BofA see earnings falling 4% this year with a more than 20% bottom-line climb in 2024. The Bloomberg consensus forecast is about in line with what BofA sees, and a more than 10% EPS boost is expected in 2025 at the consensus level. With dividends on the rise, the yield should continue to be higher than that of the broader market.
Still, BLK's operating and GAAP earnings multiples are not all that cheap compared to others in the Financials sector. If we assign a five-year average forward operating P/E of 18.8 to $33 of earnings this year, then that's a $620 stock. Also, I like to look at the price-to-book ratios on Financials, and BLK trades just 5% below its normal P/B. Thus, I see the stock near fair value ahead of its upcoming quarterly report.
BlackRock: Earnings, Valuation, Dividend Yield Forecasts
Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q1 2023 earnings date of Friday, April 14, before market open with a conference call immediately after the numbers cross the wires. You can listen live here . The calendar is light on volatility catalysts aside from the reporting date.
Corporate Event Risk Calendar
The Options Angle
Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show an EPS consensus forecast of $7.85. That would be an 18% decline from $9.52 of per-share profits earned in the same period a year ago. BlackRock has a solid earnings beat rate history with the company topping estimates in 11 of the past 12 quarters, and shares have traded higher post-earnings in all but four of the last 12 instances. So, there is a bullish trend here.
This time, the options market has priced in a small 3.4% earnings-related stock price swing when analyzing the at-the-money straddle expiring soonest after Friday's report. That is a low premium compared to history, and I would be a buyer of that premium going into the Q1 report.
BLK: Low-Priced Options Ahead of Earnings
The Technical Take
With a fair valuation and attractive options, how does the chart look ahead of Friday? I see bullish prospects, but there's a clear level of resistance. Notice in the graph below that shares remain under the $760 to $790 area which has been historically important. A rally above that zone would imply a bullish measured move price objective to near $1070. That would be a monster move in this large cap, so nearer-term selling pressure could come into play around $820 and at the 2021 peak above $970.
I see support at the March low of $620, but there's also a bullish rounded bottom formation that suggests an ongoing bearish to bullish reversal feature. After putting in a bearish negative divergence from Q3 2022 to early this year and a somewhat flat 200-day moving average, the onus remains on the bulls to thrust the stock higher.
BLK: Bullish Rounded Bottom Forming, But No Breakout Yet
The Bottom Line
I'm a hold on BLK going into earnings. The valuation is priced right while the chart is neutral but potentially turning bullish later on.
For further details see:
BlackRock: Fairly Valued Ahead Of Earnings, Year-Over-Year EPS Drop Expected