Why Is BlackRock (BLK) Down 1.7% Since the Last Earnings Report?

More than a month has gone by since the last earnings report for BlackRock, Inc. BLK. Shares have lost about 1.7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BlackRock Q3 Earnings & Revenues Beat, Expenses Rise

BlackRock reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter.

Results benefited from improvement in revenues, rise in assets under management (AUM) and steady long-term inflows. However, increase in operating expenses acted as a headwind.

Net income (on a GAAP basis) came in at $947 million, up 8% from the prior-year quarter.

Revenue Growth Offsets Rise in Expenses

Revenues (GAAP basis) grew 14% year over year to $3.23 billion. The rise was driven by higher investment advisory, administration fees and securities lending revenues, technology and risk management revenues, and investment advisory performance fees. The reported figure surpassed the Zacks Consensus Estimate of $3.11 billion.

Total expenses amounted to $1.83 billion, up 13% year over year. This was due to a rise in all cost components except amortization of deferred sales commissions, which witnessed a fall.

Non-operating income (on a GAAP basis) came in at $10 million, up significantly from $1 million in the year-ago quarter.

BlackRock’s adjusted operating income came in at $1.4 billion, up 15% year over year.

Strong AUM & Inflows

As of Sep 30, 2017, AUM totaled $6 trillion, up 17% year over year. Further, during the reported quarter, the company witnessed long-term net inflows of $75.8 billion.

Share Repurchases

During the quarter, BlackRock repurchased shares worth $275 million.

Outlook

Management’s investment in its U.S. iShare core ETFs is expected to continue to drive growth across the broader range of iShares precision exposures in the near term.  Also, this investment is likely to drive growth across its active business, going forward.

Management expects G&A expenses in the second half of 2017 to be nearly $750 million, assuming stable markets.

BlackRock remains committed to growing its technology footprint, expanding its investment capabilities and to further enhance talent levels. For this, the company projects costs related to improvement in technology and data to be nearly $1 billion in 2017.

Management continues to expect tax run rate for 2017 to be 31%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, the stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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