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BlackRock (BLK) Acquisitions Aid Revenues, Expenses Increase

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BlackRock (BLK - Free Report) has been expanding its business globally through a series of acquisitions and has taken initiatives to restructure its actively managed equities business. However, continued increase in expenses will likely hurt bottom-line growth to some extent.

In September 2018, BlackRock acquired Citibanamex’s Asset Management business in Mexico, while in August it purchased Tennenbaum Capital. Over the years, the company has acquired several firms across the globe, expanding its footprint and market share. Nonetheless, the buyout of Barclays Global Investors in 2009 remains the company’s biggest deal by far. With a strong liquidity position, BlackRock is well positioned to grow through opportunistic acquisitions.

Therefore, its strong global presence along with broad product diversification, revenue mix and steadily improving assets under management will likely further boost revenues. Moreover, gradual improvement in the market conditions, efforts to strengthen its iShares and ETF operations and increased focus on active equity business will likely further aid the company’s revenue growth, which saw a CAGR of 6% between 2012 and 2017.

However, the company’s operating costs have witnessed a CAGR of 4.4% over the last six years (ending 2017), with the same trend continuing in the first nine months of 2018. Rise in compensation and marketing costs are expected to keep expenses high, going forward. This will somewhat hamper’s BlackRock’s bottom-line growth.

Also, Blackrock’s global presence has increased its dependence on overseas revenues in the last few years. Despite generating just about one-third of revenues from overseas markets, a number of risks stemming from regulatory and political environment, foreign exchange fluctuations and performance of regional economy can negatively affect its top-line growth.

A few other stocks from the same space are Ameriprise Financial, Inc. (AMP - Free Report) , KKR & Co. L.P. (KKR - Free Report) and Pzena Investment Management Inc (PZN - Free Report) .

Over the past 30 days, Ameriprisestock has witnessed an upward earnings estimate revision of nearly 2% for the current year. Its share price has increased nearly 39% in the past two years.

KKR &Co’s earnings estimates for the current year have been revised more than 11% upward over the past 30 days. Its shares have surged nearly 70% in the past two years.

Over the past 30 days, Pzena Investmenthas witnessed almost 4% upward earnings estimate revision for the current year. Over the past two years, its share price has increased nearly 36%.

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