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Analyst Blog

On Dec 17, 2013, we reaffirmed our Neutral recommendation on The Blackstone Group L.P. (BX - Analyst Report). Though the company reported lower-than-expected third-quarter results, its consistently increasing assets under management (AUM) and efficient inorganic growth strategy are impressive.

Why Neutral?

On Oct 17, Blackstone reported third-quarter 2013 earnings per share of 56 cents, missing the Zacks Consensus Estimate by a penny. A decline in the top line was primarily responsible for the miss. However, lower operating expenses was a positive.

The Zacks Consensus Estimate for 2013 fell marginally to $2.37 per share over the last 60 days. However, for 2014, the Zacks Consensus Estimate increased nearly 1.0% to $2.97 per share over the same time period. As a result, Blackstone now has a Zacks Rank #3 (Hold).

In the present economic scenario, when most companies are undertaking initiatives to reduce costs, Blackstone has been witnessing a decline in total expenses without resorting to such efforts. Moreover, the company’s steadily improving AUM, along with its fund raising ability and organic growth prospects position it well ahead of its peers.

However, Blackstone’s huge dependence on management and advisory fees as the largest source of revenues, could weigh on the company’s financials in the near term, if there is a change in the managed assets or slowdown in business activities. Further, despite an improved economic scenario, any future crisis along with impending regulatory changes could limit Blackstone’s revenue growth and cash flow.

Other Stocks worth Consideration

Some better-ranked investment managers include Artisan Partners Asset Management Inc. (APAM - Snapshot Report), Brookfield Asset Management Inc. (BAM - Snapshot Report) and Kohlberg Kravis Roberts & Co. L.P. (KKR - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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