The Best in Investment Management
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With over $3.8 trillion in assets under management, BlackRock (NYSE: BLK) is one of the largest investment management companies in the United States. BlackRock has grown its earnings nicely, and shareholders have profited nicely as a result. In fact, over the past decade, shares are up from $39.58 in 2003 to the current level of around $235, a gain of almost 600% in 10 years! With the state of certain other financial stocks these days, this is no small accomplishment (how much was Citigroup worth 10 years ago?) Even with these gains, most analysts feel that there is more upside ahead. Should BlackRock investors hold for the next leg up, or should they go ahead and take their profits now?
BlackRock offers a diverse line of both fixed-income and equity-oriented funds, as well as smaller lines of alternative investment products and cash management services. Fixed-income and Equity funds account for 82% of BlackRock’s assets under management, and cash-management services such as money market funds make up an additional 7%.
BlackRock has tremendously grown its product line and geographical reach through acquisitions, most notably the acquisition of Merrill Lynch Investment Management in 2006. Even though this happened some time ago, it still has significance today. The deal gave Merrill Lynch a 49% stake in BlackRock, which passed to Bank of America (NYSE: BAC) with the 2008 purchase of Merrill Lynch. Over the next few years, Bank of America sold its stake, first in open market sales, then they sold the last 13.6 million shares directly to BlackRock in May 2011 for $187.65 per share.
So, BlackRock owns Merrill Lynch’s investment management business and bought 7% of its outstanding shares back at a discount (today shares are worth 32.3% more).
BlackRock is also a good dividend payer, currently with an annual dividend of $6.72 per share, or 2.84%. The company has an excellent record of raising the dividend, and they have done so very consistently over the past decade.
As far as valuation goes, I think BlackRock is pretty attractive at 15.4 times forward earnings, which are projected by consensus estimates to grow by 12.6% and 15.5% over the next two years.
For comparison purposes, T. Rowe Price (NASDAQ: TROW) is pretty close to BlackRock, in terms of product offerings, so let’s take a look.
T. Rowe Price is one of the largest mutual fund companies in the U.S. with $577 billion under management. While they don’t offer quite as diverse of a product line as BlackRock, they are very well-known and well-liked for their broad line of no-load mutual funds. Clients love these because it makes it more practical to frequently move money around between funds.
T. Rowe Price looks a bit expensive when compared with BlackRock, trading at 18.9 times forward earnings with similar earnings growth projected for both companies. These are both excellent companies that are loved by their respective clients, and this is why they have been as successful as they have. BlackRock just seems to be the cheaper investment right now.
To sum it up, BlackRock is well positioned to increase their amount of assets under management over the next few years, which will also lead to earnings growth. The increased risk tolerance coming back into the market should result in more investments in equity funds, not to mention that as the economy recovers, the funds themselves should perform well. Being that BlackRock’s historic average forward P/E ratio is over 17, the stock still looks attractive at current levels and should have some room to grow.