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Why an Earnings Beat is Likely for BlackRock (BLK) in Q3?


BlackRock, Inc. BLK is slated to report third-quarter 2017 results on Oct 11, before the opening bell. Its revenues and earnings are projected to grow year over year.

The company’s second-quarter earnings lagged the Zacks Consensus Estimate. Results were hurt by higher expenses and lower investment advisory performance fees. However, growth in assets under management (AUM) acted as a tailwind.

Nevertheless, the company boasts a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 1.9%.

Moreover, BlackRock’s business activities and prospects encouraged analysts to revise earnings estimates recently. As a result, the Zacks Consensus Estimate of $5.58 for the just-concluded quarter has increased 1.1% over the last 30 days.

Shares of the company have gained 21.7% so far this year, underperforming the 24.6% growth for the industry it belongs to. However, we believe the positive trend in estimate revisions will translate into a better price performance in the near term.

BlackRock, Inc. Price and EPS Surprise

BlackRock, Inc. Price and EPS Surprise | BlackRock, Inc. Quote

Before we discuss the driving factors in detail, let’s look at what our quantitative model predicts.

A Positive Surprise in Store?

According to our quantitative model, chances of BlackRock beating the Zacks Consensus Estimate in the to-be-reported quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for BlackRock is +0.40%.

Zacks Rank: BlackRock currently carries a Zacks Rank #2 (Buy), which when combined with a positive ESP, increases the chances of an earnings beat.

Factors to Influence Q3 Results

BlackRock continues to dominate the ETF market with its continued investments in its U.S. iShare core ETFs. Moreover, as investors are increasing their allocations toward ETFs rather than alternative investments with an aim to reduce management costs, the company’s iShares inflows are expected to remain strong in the quarter. This will likely further boost its AUM, which witnessed 16% year-over-year growth last quarter.

The New York-based asset manager remains well diversified geographically. As a result, the average fee rate is likely to rise on the back of higher international flows amid recovering global economic conditions.

However, BlackRock might witness an increase in costs in the to-be-reported quarter. BlackRock’s expenses have remained elevated over the last few years. Moreover, its plans of restructuring the traditional actively managed equities business and improving product offerings are expected to lead to a further increase in expenses.

Other Stocks Worth a Look

Here are a few other finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this quarter, according to our model.

Comerica Incorporated CMA is slated to release results on Oct 17. It has an Earnings ESP of +1.16% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.32% and carries a Zacks Rank of 3. The company is slated to release results on Oct 19.

Associated Banc-Corp ASB is also scheduled to release results on Oct 19. It has an Earnings ESP of +1.12% and carries a Zacks Rank of 3.

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