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BlackRock's Outlook Upgraded by Moody's, Ratings Affirmed

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Moody's Investors Service, the rating services arm of Moody's Corporation (MCO - Free Report) , upgraded BlackRock, Inc.’s (BLK - Free Report) outlook from stable to positive. The company’s long-term issuer and senior unsecured ratings were affirmed at A1. Additionally, its short-term issuer and commercial paper ratings were affirmed at P-1.

The outlook revision is based on the belief that the company’s exchange traded products and its technology solutions will become more important to the asset management industry, going forward.

Looking at BlackRock’s fundamentals, the company holds a leading share in the global exchange traded fund (ETF) market. The company’s investment in the U.S. iShare core ETFs is expected to continue driving 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.

Additionally, the company’s Aladdin technology platform, which is emerging out to be a stand-alone product, helps it in delivering and managing products, thereby generating better revenues. The platform also enables its users to manage portfolios with other BlackRock products.

However, the asset management business in the U.S has been in rough waters as most of the investments are directed toward low-fee passive offerings like ETFs instead of high-fee active strategies. BlackRock’s actively-managed funds have been witnessing outflows for the past several quarters, while its ETF business registered inflows. Hence, in order to encourage investors to once again move toward actively-managed funds, the company is making efforts to restructure its traditional active-equity management business and improve its product offerings as per changing client needs.

Per Moody’s, BlackRock's ratings could be upgraded if it succeeds in generating and increasing revenues along with improving market-driven AUM, its revenues net of distribution costs approach $11 billion, the adoption of Aladdin and iShares continues to increase and the total Debt/EBITDA is sustained below 1.5 times.

However, BlackRock's ratings would stay at the current level if it is unable to convert the AUM growth to revenue growth, a recovery in the use of its active management weakens the use of its passive products, its revenues net of distribution costs fall below $10 billion and leverage increases to 2.0 times EBITDA.

Though, shares of BlackRock have gained 24% in the last one year, underperforming the Zacks categorized Investment Management industry’s rally of 31.2%, the company has been witnessing positive estimate revisions of late, reflecting analysts’ optimism about its growth prospects.

For the current year, the Zacks Consensus Estimate was revised nearly 1% upward in the last 30 days. As a result, the stock currently carries a Zacks Rank #2 (Buy).



A couple of other stocks in the same space worth considering include Eaton Vance Corp. (EV - Free Report) and Franklin Resources, Inc. (BEN - Free Report) .

The Zacks Consensus Estimate for Eaton Vance was revised 3.3% upward for the current fiscal year, in the last 60 days. The company’s share price has increased 36.6% in the last one year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Franklin Resources witnessed an upward earnings estimate revision of 2.5% for the current fiscal year, in the last 60 days. Its share price has increased 37.4% in the last one year. The company currently carries a Zacks Rank #2.

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