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Shares of BlackRock, Inc. (BLK) have recorded a year-to-date return of 45%. Impressive organic growth, strong capital deployment activities of the company and strategic acquisitions acted as the positives behind this growth story. However, we are not confident that these positives will translate to further strength down the road as there will be considerable pressure on its bottom line owing to higher expenses.

After analyzing the company’s fundamentals following the third-quarter 2013 earnings release, we would suggest to stay invested in it. However, adding fresh shares of BlackRock to your investment portoflio may not be a good idea given the expected headwinds.  

Why this Stance?

BlackRock’s third-quarter 2013 adjusted earnings came in at $3.88 per share, in line with the Zacks Consensus Estimate. Further, this was up 12% from $3.47 earned in the year-ago quarter.

Results benefited from a rise in revenues, partly offset by higher operating expenses. Further, significant growth in AUM was a tailwind.

BlackRock’s share repurchase policy provides adequate room for enhancement of shareholders value. As of Sep 30, 2013, the company had 7.3 million shares remaining to be repurchased under its existing repurchase program.

However, BlackRock’s bottom-line growth is expected to be sluggish in the next few quarters due to its elevated operating expenses. Total operating expenses increased 9.3% for the nine months ended Sep 30, 2013 compared with the same period last year. Moreover, market fluctuations, regulatory changes or a sudden slowdown in overall business activities may create pressure on investment advisory, administration fees and securities lending that account for major revenue sources of the company.

When it comes to estimate revision, the company has witnessed a mixed track. The Zacks Consensus Estimates has not been in trend either, so BlackRock currently carries a Zacks Rank #3 (Hold). Over the last 30 days, the Zacks Consensus Estimate for 2013 remained almost stable at $16.06 per share. However, for 2014, it moved north roughly 1% to $17.96 per share.

Other Stocks to Consider

If you are interested in Investment Management stocks, you may consider a few better performing stocks like GAMCO Investors, Inc. (GBL - Snapshot Report), Waddell & Reed Financial, Inc. (WDR - Analyst Report) and Affiliated Managers Group Inc. (AMG - Analyst Report). GAMCO Investors and Waddell & Reed Financial both carry a Zacks Rank #1 (Strong Buy), while Affiliated Managers carries a Zacks Rank #2 (Buy).

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