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Will BlackRock (BLK) be Able to Beat Q2 Earnings Estimates?

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BlackRock, Inc. (BLK - Free Report) is slated to report second-quarter 2018 results on Jul 16, before the opening bell. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an improvement in revenues, rise in assets under management (AUM) and long-term inflows.

Moreover, the company boasts a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being nearly 2.6%.

BlackRock, Inc. Price and EPS Surprise

BlackRock, Inc. Price and EPS Surprise | BlackRock, Inc. Quote

However, BlackRock’s business activities and prospects in the to-be-reported quarter did not encourage analysts to revise earnings estimates upward. The Zacks Consensus Estimate for earnings of $6.64 has decreased marginally over the past 30 days. Nonetheless, the figure reflects a year-over-year improvement of 26.7%.

Strong fundamentals have helped shares of the company to gain 15.6% in the past year, outperforming 2.6% growth recorded by the industry.

Will the rally in share price continue post Q2 earnings? To a great extent, it depends on whether the company is able to maintain its trend of beating earnings estimates.

Before we take a look at what our quantitative model predicts, let’s discuss the factors that are likely to influence Q2 results.

Factors to Impact Q2 Results

BlackRock remains a dominant player in the ETF market, given its continued investments in U.S. iShare core ETFs. Moreover, as investors are increasing their allocations toward ETFs instead of alternative investments in order to reduce management costs, the company’s iShares inflows are expected to remain strong in the to-be-reported quarter. In fact, the company expects to witness positive active equity flows during the quarter under review. Thus, while negative foreign currency adjustments during the second quarter might have an unfavorable impact on AUM, total AUM is expected to improve, driven by steady inflows. The Zacks Consensus Estimate for total AUM for the to-be-reported quarter is $6.44 trillion, which reflects rise of 1.9%, sequentially.

Supported by the increase in assets during the to-be-reported quarter, investment advisory, administration fees and securities lending revenues, which constitute more than 80% of the company’s total revenues, is also expected to witness an improvement. The Zacks Consensus Estimate for the same is $3.03 billion, reflecting 13.4% increase year over year.

Moreover, performance fees, which is also a major revenue component, is expected to improve during the quarter to be reported. The Zacks Consensus Estimate for performance fees for the second quarter is $76 million, which represents an improvement of 58.3% from the prior-year quarter.

However, consensus estimates for advisory and other revenues show that this component is likely to witness a decline. The Zacks Consensus Estimate for the same is $72 million, which reflects a decline of 1.4% year over year.

Thus, while advisory and other revenues are expected to decline, an improvement in the major components of revenues is likely to boost the company’s total revenues. The Zacks Consensus Estimate for revenues for the second quarter is $3.45 billion, which reflects growth of 16.4% year over year.

Notably, BlackRock might witness an increase in costs in the to-be-reported quarter. BlackRock’s expenses have remained elevated over the last few years. Moreover, the restructuring of the traditional actively managed equities business, along with its plans for improving product offerings, is expected to lead to further rise in expenses.

Earnings Whispers

According to our quantitative model, it cannot be conclusively predicted whether BlackRock will be able to beat the Zacks Consensus Estimate in the second quarter. This is because, it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for BlackRock is 0.00%.

Zacks Rank: BlackRock currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.

Stocks Worth a Look

Here are a few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this quarter, according to our model.

Comerica Incorporated (CMA - Free Report) is scheduled to release results on Jul 17. It has an Earnings ESP of +1.60% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Blackstone Group L.P. (BX - Free Report) is slated to release results on Jul 19. It has an Earnings ESP of +5.40% and carries a Zacks Rank #3.

KeyCorp (KEY - Free Report) has an Earnings ESP of +0.20% and carries a Zacks Rank of 3. The company is also slated to release results on Jul 19.

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