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Rising Expenses to Hurt BlackRock's Profits: Time to Sell?

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BlackRock’s (BLK - Free Report) profitability is expected to be hampered to some extent in the near term due to continuously increasing expenses. Moreover, the company's high dependence on overseas revenues makes us apprehensive.

The Zacks Consensus Estimate for its current-year earnings has been revised 9.2% lower over the past 30 days, reflecting that analysts are not optimistic regarding its earnings growth potential.

BlackRock’s price performance is also not encouraging. Shares of the company have lost 34.9% so far this year compared with the industry’s decline of 36%.


Looking at its fundamentals, total expenses have increased, witnessing a CAGR of 6.3%, over the last six years (2014-2019) mainly due to rise in general and administration costs. Notably, as the company continues to undertake restructuring initiatives to modify the size and shape of its workforce, and improve operating efficiency; overall costs are expected to remain elevated in the near term.

For 2020, BlackRock expects rise in core G&A expenses of 5% year over year mainly due to continued investments in technology and market data along with the full-year impact of the eFront acquisition.

Moreover, BlackRock is a geographically diversified company, with presence in almost all the major markets in the world. Despite generating just about one-third of revenues from overseas markets; a number of risks stemming from the regulatory and political environment, foreign exchange fluctuations, and performance of regional economy could affect its top-line growth.

Nevertheless, solid growth in assets under management (AUM) balance is expected to aid revenues. Moreover, the company’s initiatives to restructure the actively-managed equity business and expand through acquisitions (amid a tough operating environment) will likely support growth in the long run.

Notably, the company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the finance space are mentioned below.

Virtu Financial, Inc.’s (VIRT - Free Report) Zacks Consensus Estimate for current-year earnings has been revised upward by 34% over the past 60 days. The company currently sports a Zacks Rank #1 (Strong Buy).

Metropolitan Bank Holding Corp. (MCB - Free Report) has witnessed an upward earnings estimate revision of 5.5% for the current year over the past 60 days. At present, the company flaunts a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for earnings of Focus Financial Partners Inc. (FOCS - Free Report) has been revised 3.6% upward for the current year over the past 60 days. The company currently carries a Zacks Rank #2 (Buy).

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