Haut de la page

BlackRock (BLK, U$418.37)

View this article in PDF formatNOTE - This link will open in a new tab.

General Comments

For many investors, BlackRock is synonymous with iShares! Although this statement is a bit simplistic, it is not completely wrong.

With $5.42 trillion in assets under management, BlackRock is the world's largest fund manager in this field.

However, at its core, BlackRock is particularly oriented towards passive management, given its offer of exchange traded funds (iShares ETFs) and index funds for institutions.

These passive management products currently account for nearly two-thirds of the assets under management and for nearly half of the company's revenues.

On the other hand, the attraction for passive management products, which has been going for many years, seems to be a long way from losing steam.

With this in mind, the dominant position of BlackRock and its main competitor, Vanguard, prevents the arrival and development of new competitors!

In addition to its dominant position in indexing and passive fund management, BlackRock also offers a full range of managed products.

It is largely this ability to offer both active management and passive management products that is one of BlackRock's key benefits.

With this in mind, BlackRock is uniquely positioned to continue to benefit from this advantage, and its reputation as well as the breadth and diversity of its services (BlackRock has clients in more than 100 countries) make it a virtually inimitable player.

With a market capitalization of less than $70 billion, BlackRock can still grow tremendously!

At Disnat GPS, we believe that BlackRock is in itself a very attractive investment. Moreover, as we want exposure to a US financial security, this company, because of its unique situation, is among those that best complements traditional banking securities like Canadian banks!

Other Disnat GPS reports available in the GPS section of the Disnat website: Apple, Disney, Nike, Cisco, Microsoft, AT&T, Facebook and Dollar General.

Financial Health

Fiscal Year 2014 2015 2016
Long term debt (in billions of dollars) 8.3 4.9 4.9
Debt/equity ratio 0.30 0.17 0.17

BlackRock's financial health is particularly strong.

The company has recently repaid part of its debt, reducing it from more than $8 billion to less than $5 billion.

Given the $6 billion in cash held at the end of 2016, this company has virtually no net debt.

BlackRock's debt-to-equity ratio, which declined from 0.30 to 0.17, confirms the strength and profitability of this company.

However, we would like to add the following caveat: the 2008 crisis taught us that it is sometimes difficult even for specialists to understand the financial statements of financial sector companies and to foresee the difficulties they might face (think of Lehman Brothers and Bear Stearns, for example). This is why we are now more skeptical about the statements made by players in the financial sector.

Despite the above caveat, at Disnat GPS we believe that the industry in which it operates makes BlackRock one of the US financial stocks that is least likely to hold unpleasant surprises like those from Bear Stearns and Lehman Brothers in 2008.

Growth

Compound Yield 1 year 3 years 5 years 10 years
Earnings -2.2% 3.1% 4.2% 18%
Earnings per share -3.8% 4.1% 9.0% 17%

The growth of BlackRock's earnings and earnings per share over the past five or ten years has been very strong and very stable.

While there is always a possibility of disruption, as the one-year results show, we believe BlackRock is well positioned to return to growth.

Not only do passive management products have the wind at their back, but we also believe that an individual or an institution that invests in a passive ETF or an index fund will retain that product for a longer period of time than those investing actively in more traditional management firms.

In addition, the company's reputation and the diversity of its product line make it possible to keep clients at BlackRock when the product is no longer perfectly suited to them.

At Disnat GPS, we believe BlackRock is well positioned to pursue internal growth and to benefit from global growth, which is expected to continue for some time to come.

Valuation

Key Ratios DG DG (5 yr avg) S&P 500
Price/earnings 20.4 17.5 21.2
Forward price/earnings 19.2 N/A 19.9
Dividend yield 2.3% N/A 2.4%

BlackRock's valuation in terms of price-earnings ratio is a little higher than we might like.

The security is currently trading at a premium over its own average of the past five years, both in terms of price-earnings and future price-earnings.

Although it is expensive in absolute terms, the company is trading at a discount compared to the S&P 500.

At this point in time, therefore, the market places less value on a dollar of BlackRock earnings than on a dollar of earnings from an average S&P 500 company.

We do not agree with the view that more than 250 companies in the S&P 500 have a more promising future than BlackRock.

At Disnat GPS, we believe that the market is currently valuing BlackRock relatively correctly. We are therefore very satisfied to own a superior company at a reasonable price.

Governance

Fiscal Year 2012 2013 2014 2015 2016
Earnings per share ($) 13.79 16.87 19.25 19.79 19.04
Dividend ($) 6.00 6.72 7.72 8.72 9.16
Number of shares (millions) 178 174 171 169 166

BlackRock is a fast growing company that is transforming itself into more of a "value" type of business.

Listed in 1999, it introduced a dividend in 2003, which it has increased in each of the last five years. During this period, the dividend was actually raised by more than 10% per year.

The company also regularly buys part of its outstanding shares. Over the past five years, it has bought back more than 4%. It maintains a share buyback program that it continues to implement when the situation permits.

In terms of development, we do not anticipate major acquisitions for now, but rather a reinvestment in the existing business.

BlackRock offers everything that Disnat GPS is looking for in a company: a dominant position in a sector of the future, good profitability and the distribution of some of these profits to investors.

Explanatory notes

Disnat GPS reports contain five separate sections, each followed by comments from the Disnat GPS Portfolio Strategist regarding the following:

  1. Company Description
  2. Financial Health
  3. Growth
  4. Valuation
  5. Governance

At Disnat GPS, we believe that the topics, ratios and other financial figures presented here are particularly important.

However, for reasons of space, we can not publish all available data. We therefore invite you to read the additional financial information on the Desjardins Online Brokerage website.

Furthermore, this report is an analysis of the condition of a company today, with a medium to long term view. It is in no way an adequate tracking of daily activities of the stock market in general or of this particular company.

For a more regular monitoring of this and other securities held in one of our portfolios, please to subscribe to Disnat GPS now.

Warning

This Disnat GPS report is presented for general information purposes only. Desjardins Group, Desjardins Online Brokerage and Disnat GPS assume no responsibility for any errors or omissions and reserve the right to change or revise the contents of this report at any time without notice.

Financial and economic data, including stock quotes, analyses and interpretations thereof, is provided for informational purposes only and should in no way be regarded as a recommendation or advice to buy or sell any security or derivative.

It is possible that Desjardins or Desjardins Securities have already published differing or even contrary opinions to what is expressed herein. These views reflect the different views, assumptions and portfolio analysis methods of the analyst who provided them.

Desjardins Online Brokerage, its directors, officers, employees and agents will not be held liable for damages, losses or expenses incurred as a result of the use of information contained in this report.

All data are from Morningstar (©Morningstar).

The author

Steve Deschesnes

Steve Deschesnes

Disnat GPS Portfolio Strategist