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Analyst Blog

On Jun 24, 2013, we downgraded our recommendation on The Blackstone Group L.P. (BX - Analyst Report) to Neutral from Outperform. Though the company reported better-than-expected first-quarter 2013 earnings, anticipation of slow investment realization in the near future led to the downgrade.

Why Neutral?

Blackstone’s first-quarter 2013 economic net income (ENI) came in at 55 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, this compares favorably with ENI of 44 cents per share recorded in the year-ago quarter. Results were aided by substantial top-line growth, offset by higher operating expenses. Steady assets under management (AUM) and improved balance sheet were the other positives for the quarter.

Following the result release, the Zacks Consensus Estimate went up by 1.8% to $2.30 per share over the last 60 days. However, for 2014, the Zacks Consensus Estimate went down by 0.7% to $2.69 per share over the same time frame. The company currently has a Zacks Rank #3 (Hold).

Blackstone’s strong presence across the globe due to continuous acquisitions and its ability to contain expenses without resorting to any cost reduction initiatives have resulted in the top-line improvement. Moreover, Blackstone’s solid fee-earning AUM and total AUM demonstrate its strong growth, further aided by increasing net inflows.

However, Blackstone’s increased dependence on management and advisory fees could adversely affect the company’s revenue generating capacity in the near term, if it witnesses any regulatory changes or a slowdown in business activities. Moreover, stringent regulations and ongoing capital market volatility can adversely affect the company’s financials going forward.

Other Major Banks to Consider

Some better performing stocks include GAMCO Investors, Inc. (GBL - Snapshot Report), Noah Holdings Limited and Virtus Investment Partners, Inc. (VRTS - Snapshot Report). All these carry a Zacks Rank #1 (Strong Buy).

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