December 7, 2020 BARRON’S 19
years, and it now makes up 6% of the
assets in their accounts. Papp says that
BlackRock stock may level off to “grow
into its current valuation.” But, he
adds, “We’re retaining everything we
have, because two to three years from
now, it will be substantially higher.”
Papp sees earnings growing around
10% annually for the next three years,
even if the multiple doesn’t budge.
That suggests a 25% to 30% gain in
the stock over that period.
BlackRock has a lot of strengths: a
raft of strong earnings drivers, includ-
ing growth in its $2.3 trillion iShares
exchange-traded funds franchise, with
powerhouses like theiShares Core
S&P 500(IVV) andiShares Core
U.S. Aggregate Bond(AGG); in-
creased fees from actively managed
and bond funds; a fast-growing risk-
management platform, Aladdin; and
a big push into sustainable investing.
While Morningstar thinks that
most U.S. asset managers will find it
hard to boost assets in the next five to
10 years, it sees BlackRock rising 3%
to 5% annually over that span.
In the first three quarters of the
year, net inflows were $264 billion,
bringing assets from $7.4 to $7.8 tril-
lion. However, iShares accounted for
40% of those inflows. Bond funds
were also surprisingly popular, as
insurers and other institutions loaded
up on bond ETFs during the pan-
demic because they could price them,
unlike individual bonds.
BlackRock believes that iShares has
lots of headroom: ETF penetration in
equities is just 5%, and in global bonds,
1%. BlackRock, with about 35% of the
ETF industry, thinks ETFs will grow in
the mid teens annually.
While BlackRock is often seen as a
giant index-fund provider, it has lots of
actively managed funds, too. Here, per-
formance has been strong: Over the
five-year period ended in the third
quarter, 86% of taxable fixed-income
funds beat benchmarks or peers, while
80%-plus of equity funds did, as well.
Then there are alternatives, critical
to delivering performance in a low-yield
world. The $2.9 billionBlackRock
Systematic Multi-Strategyfund
(BAMBX) has beaten its rivals over the
past five years, with a below-average
expense ratio. Partly because of its 25%
allocation to private assets,BlackRock
Capital Allocation Trust(BCAT)
raised $2 billion this fall.
All of this leads to fatter fees. In the
third quarter, base fees jumped 8%,
against 3% a year earlier.
Next there’s Aladdin, which gener-
ates about $1 billion of the firm’s esti-
mated $16 billion in revenue and is
growing at a double-digit clip. Some
250 firms, including BlackRock rivals
like Capital Group, are clients.Eaton
Vance(EV) uses it for bonds and plans
to introduce it in equities in coming
months, says Lewis Piantedosi, Eaton’s
co-director of growth equity, which
owns BlackRock in its tax-managed
growth fund. BlackRock thinks that
Aladdin’s addressable market is $
billion. BlackRock charges fees on as-
sets managed on Aladdin, though the
percentage falls as assets grow. And
the firm is adding Aladdin products,
including software to let investors mea-
sure climate risk in their portfolios.
Then there’s sustainability. Black-
Rock CEO Larry Fink has pledged to
put sustainability at the heart of the
firm’s investment process and urged
companies to adopt stakeholder capi-
talism. The firm’s suite of sustainable
funds have buoyed flows and attracted
assets from other managers.
Still, BlackRock is hardly perfect: It
has been criticized for large holdings of
fossil-fuel stocks in passive index strat-
egies and for voting too frequently with
management on climate-risk disclo-
sures. And BlackRock has said that it
needs to do better on equality and
promised to boost the number of Black
employees and leaders.
In aBarron’sinterview, President
Rob Kapito ticks off the firm’s
strengths: “At all times, keeping alpha
at the heart of BlackRock, delivering the
whole portfolio solution to clients, and
becoming the leader in sustainability.”
Kapito believes that money-
management consolidation can also
boost flows: “Large-scale integrations
aren’t easy,” says Kapito. “We feel
we’re going to gain market share
from this disruption being created.”
For 2020, analysts on average ex-
pect BlackRock to earn $4.9 billion, or
$31.97 a share. For 2021, they see $5.
billion in earnings, or $35.08 a share,
and for 2022, earnings of $5.8 billion,
or $39.23 a share.
Evercore ISI analyst Glenn Schorr
rates BlackRock stock Outperform and
calls it “my No. 1 or No. 2 favorite asset
manager. We’re at this magical point of
the year when people’s price targets
shift from 2021 estimates to 2022 esti-
mates.” Given the market’s strength, he
argues, estimates should move higher,
lifting price targets. BlackRock is more
than just the stock market; it’s also
growing quickly and putting its mas-
sive scale to work.
But what about that multiple?
Deutsche Bank’s Brian Bedell is a bull
with a $795 target. “The No. 1 reason
is there’s organic growth,” says Bedell,
“which is by far the most important
metric because other firms have been
losing [assets].”B
BlackRockHas
Soared.Why
There’sUpside
The stock of world’s biggest asset manager, up 42%
this year, looks primed for long-term gains
When Bigger Is Better
BlackRock’s assets and share price have climbed in
tandem for the past decade.
Sources: Bloomberg; company reports
$10 trillion $
8 600
6 450
2 150
4 300
0
2010
AssetsUnderManagement
Stock Price, ticker: BLK
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 2020
0
Growing Giant
Nearly a third
of BlackRock
assets are in
exchange-traded
funds.
$2.3 T
And it’s growing
fast. BlackRock’s
iShares ETF busi-
ness rose 9% in
the first three
quarters of 2020.
T
he stock market has had an
amazing year—and so has
BlackRock,the world’s
largest asset manager.
As stocks snapped back
from pandemic lows, Black-
Rock (ticker: BLK) has
notched a 42% gain for the year to a
recent $718. That easily beats the S&P
500 index, up 14%, as well as money
managers likeT. Rowe Price(TROW),
up 23%;Invesco(IVZ), down 1%; and
Franklin Resources(BEN), off 12%.
Can BlackRock shares keep up the
pace? The firm’s performance didn’t
come out of nowhere. With its global
reach, massive scale—at nearly $8 tril-
lion in assets—and products across the
investment spectrum, BlackRock looks
positioned for long-term growth.
And the fact is, BlackRock fared
well in markets struggling with a
range of uncertainties. Now, with
some of the issues linked to the
pandemic and the election waning,
the stock could catch a tailwind as
analysts begin to adjust their growth
expectations for the coming two years.
True, BlackRock carries a hefty
price/earnings ratio. At 18 times 2022
earnings forecasts, its shares are
pricey compared with T. Rowe Price’s
14 times and Franklin Resources’
eight. But bulls believe that BlackRock
deserves the S&P 500 multiple of 20,
which would put the stock at $800.
And even if that multiple expan-
sion doesn’t occur, Harry Papp, CEO
of L. Roy Papp & Associates, an Ari-
zona investment advisor, is hanging
on. Papp has seen swings before: His
clients have owned BlackRock for 10
By LESLIE P. NORTON
Jeenah Moon/Bloomberg
BlackRock’s New York headquarters: global scale and an increasingly diverse business