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Why is an Earnings Beat Likely for BlackRock (BLK) in Q1?


BlackRock, Inc. BLK is slated to report first-quarter 2018 results on Apr 12, before the opening bell. Its revenues and earnings are projected to grow year over year.

Last quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an improvement in revenues, rise in assets under management (AUM) and long-term inflows.

Moreover, the company boasts a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being nearly 3.1%.

BlackRock, Inc. Price and EPS Surprise

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

However, BlackRock’s business activities and prospects did not encourage analysts to revise earnings estimates upward for the to-be-reported quarter. The Zacks Consensus Estimate for earnings of $6.44 has decreased marginally over the last 30 days. Nonetheless, the figure reflects year-over-year improvement of 22.7%.

In fact, the Zacks Consensus Estimate for revenues for the quarter is $3.28 billion, which reflects growth of 16.1% year over year.

Strong fundamentals helped shares of the company to gain 35.7% in the past year, outperforming 14.4% growth of the industry.

Will the rally in share price continue post Q1 earnings? To a great extent, it depends on whether the company is able to maintain its trend of beating earnings estimates.

Before we discuss the factors that are likely to influence Q1 results, let’s look at what our quantitative model predicts.

A Positive Surprise in Store?

According to our quantitative model, it is likely that BlackRock will be able to beat the Zacks Consensus Estimate in the first quarter. 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 +0.07%.

Zacks Rank: BlackRock currently carries a Zacks Rank #3, which when combined with a positive ESP, increases the odds of an earnings beat.

Factors to Impact Q1 Results

BlackRock remains a dominant player in the ETF market, given its continued investments in U.S. iShare core ETFs. Moreover, as investors are increasing their allocations toward ETFs instead of alternative investments in order to reduce management costs, the company’s iShares inflows are expected to remain strong in the to-be-reported quarter. In fact, the company expects to witness positive active equity flows during the quarter as well. Thus, driven by steady inflows, AUM is likely to witness improvement. The Zacks Consensus Estimate for total AUM for the to-be-reported quarter is $6.49 trillion, which reflects rise of 3.3%, sequentially.

While higher AUM is expected to have a positive impact on investment advisory, administration fees and securities lending revenues, this effect is likely to be slightly offset by the muted market performance that was witnessed during the quarter. Thus, the investment advisory, administration fees and securities lending revenues, which constitute more than 80% of the company’s total revenues, are likely to witness only a marginal improvement in the quarter.

However, performance fees, which is another major revenue component is not expected to improve during the quarter. The Zacks Consensus Estimate for performance fees for the first quarter is $65 million, which represents decline of 77.2% from the prior quarter.

Notably, 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, the restructuring of the traditional actively managed equities business, along with its plans for improving product offerings, is expected to lead to a further rise 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 scheduled to release results on Apr 17. It has an Earnings ESP of +0.95% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation BBT is slated to release results on Apr 19. It has an Earnings ESP of +1.39% and carries a Zacks Rank #3.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +2.96% and carries a Zacks Rank of 3. The company is also slated to release results on Apr 19.

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