The first Quarter of 2023 has shaped up to be a unique one because of the challenging economic landscape that companies have had to operate in over the past 12 months, largely characterised by record high inflation and as a result an environment of high interest rates. As such, Q1 earnings have peaked investors’ interest more than usual. One of the companies due to report their earnings on 14 April 2023 at the opening bell will be BlackRock (NYSE: BLK).
BlackRock, Inc. is a leading global investment management corporation, founded in America in 1988 and based in New York. The company has become the world’s largest asset manager, with $8,6 trillion in assets under management, and provides a wide range of investment and technology services to institutional and retail clients worldwide.
The company’s investment products span across various asset classes, including equities, fixed income, alternatives, and cash management. In this report, we will analyse BlackRock’s financial performance for the first quarter of the year, focusing on key metrics such as revenue, earnings, and expectations. Additionally, we will provide insights into the company’s strategic initiatives and outlook for the future.
BlackRock is set to fall slightly below the market’s expectations for the fourth consecutive quarter when they release their earnings and revenue, and this decline in growth is mainly driven by factors such as the current inflation themed economic landscape, which has prompted hawkish monetary policy responses from the global central banks in the form of the fastest rate hike cycle in 40 years, which has had the net effect of causing significant upheaval in the banking sector and financial markets.
As a result, this unique sequence of events, instigated first by the Covid-19 Pandemic and then the subsequent geopolitical tensons, has weighed heavily on BlackRock’s advisory and investment management side of the business.
With a global economy seeing several sequences of unprecedented events in the past 12 months, the company’s earnings for Q1 are likely to reflect the damage inflicted by significantly volatile commodities prices and the war in Ukraine, as well as the recent banking crisis. These cumulative factors affected the investment advisory and administration fees side of the business, which account for three-quarters of total revenue and add up to a loss amounting to 11% from the previous year.
Key insights to consider:
- BlackRock projects higher yields in the near-term, driven by the expectation that central banks will bring an end to their rate hiking cycle, due to the cracks beginning to show in the real-world economy, as well as inflation data beginning to show signs of a downtrend.
- BlackRock is putting greater emphasis and attention on “very short-term” government bonds for income during this transition period in the global economy. Additionally, a preference of investment in emerging markets will be taken over developed economies.
- Amongst the downward pointing data such as a decline in revenue and EPS, the silver lining in Q1 will be the activity in BlackRock’s asset management and ETF division. This comes on the back of the company leading the industry in 2022 with net inflows totalling $393 billion.
Earnings per share
Earnings per share from the company are expected to be lower, coming in at $7.89 according to the Trefis analysis, which is slightly above the consensus estimate of $7.72, and represents a 17% decline from the previous year’s reported figure. The adjusted estimate for Q1 sales came in at $4.24 billion, representing a decrease of 9.9% from the preceding year’s quarter.
BlackRock’s valuation is estimated to be around $750 per share, which comes in at 12% above the market price currently. Nevertheless, the company is more than likely to report an annual GAAP EPS of $33.50 for the duration of a full year.
Technical Analysis (H4)
In terms of market structure, price has approached the key $620 level and found support. Current price action appears to have invalidated the upper trendline, however it did so in a corrective manner, and failed to break above the previous Lower-High. Henceforth, the current range formed between the $637 – $676 area is important in that it could potentially evolve into a classic bull flag continuation pattern to the upside, or this area could be forming a bearish continuation pattern that could potentially be looking to test the previous low around the $620 level.
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