Blackstone (NYSE:BX) has performed well since being added to the S&P 500. The $150 billion market cap Asset Management and Custody Banks industry company within the Financials sector trades with a premium valuation multiple to its sector, but questions remain as to when M&A activity will pick up as well as how real estate dealmaking turns out over the back half of 2024.
With a solid management team at the helm and significant earnings upside likely to come, the bulls have a lot to hang their hats on. But shares are now close to my fair value estimate, while its technical chart is generally healthy.
I am downgrading the stock from a buy to a hold, primarily on valuation. I still like its momentum, and growth investors should rightly be attracted to BX’s earnings potential.
High Private Equity Dry Powder, Macro Challenges Remain
Apollo Global
According to Bank of America Global Research, Blackstone is the largest alternative asset manager globally. Blackstone manages investments and provides services across four operating segments, including Private Equity, Real Estate, Credit, and Hedge Fund Solutions. Blackstone has offices worldwide and is headquartered in New York.
Back in April, Blackstone’s earnings topped Wall Street’s consensus EPS estimate. Q1 distributable EPS of $0.98 was a beat by a penny, but it dropped sequentially from $1.11 in Q4 2023. Fee-related earnings of $1.16 billion in the first quarter, up from $1.04 billion in the same period a year earlier. Total assets under management swelled to $1.06 trillion, slightly above consensus, while dry powder of $191.2 billion declined from $197.3 billion as of the end of 2023.
A concern shareholders may have is that the company paid out a significant sum as compensation – total compensation and benefits surged to $1.31 billion in the quarter, versus just $543 million in Q4 2023 and $763 million in Q1 2023.
Broadly, fundamentals improved, and further growth is expected as 2024 presses on. While much depends on the macro, including the interest rate environment, conditions appear conducive for solid fundraising and investing activity over the quarter ahead. With a pipeline of $15 billion of pending deals, a small turn in the dealmaking world should promote even better fee-related earnings for Blackstone.
I’ll be watching how Q2 fundraising and net flows went in the upcoming earnings report, as well as its stock-based compensation amounts. Of course, the booming private credit market remains a tailwind. The options market has priced in a 3.9% earnings-related stock price swing when analyzing the at-the-money straddle, expiring soonest after the upcoming earnings report.
Key risks include rising interest rates, weaker overall M&A activity, continued struggles in the real estate market, and poor execution by the management team.
On earnings, analysts at BofA see operating EPS rising significantly this year and then continuing to increase at a solid pace through the out year and into 2026. The current Seeking Alpha consensus forecast is not quite as upbeat, but the street still sees significant profitability improvements over the quarters ahead. Blackstone’s top line is seen jumping 25% this year and 23% in 2025. Much will depend on how capital markets perform, as well as the state of corporate risk-taking.
Dividends, meanwhile, are projected to increase at a clip comparable to EPS growth, resulting in a potentially growing yield, which could attract a new swatch of income investors. And with its earnings multiple potentially drifting under 20, the valuation case would become better.
Blackstone: Earnings, Valuation, Dividend Yield Forecasts
BofA Global Research
With a historic P/E ratio in the low- to mid-20s, the current valuation is not far from the long-term mean. If we assume $5.40 of operating EPS over the next 12 months and apply the stock’s long-term average P/E of 23.6, then shares should trade near $127. That is a slight increase from my previous intrinsic value target of $120 last year, amid better earnings in the coming year and a slightly higher multiple.
Given the bottom-line growth rate, a modest valuation premium to the market is deserved in my view. Of course, the stock price has jumped in the past 10 months, so a hold rating makes sense.
Blackstone: A Premium Valuation
Seeking Alpha
Compared to its peers, Blackstone has a weak valuation grade, but that is common across the industry today. With a healthy growth trajectory and solid profitability trends, the firm’s fundamentals look strong.
But the sellside has turned less sanguine on BX – there have been 16 EPS downgrades in the past 90 days, compared with just 3 upward earnings revisions. At the same time, share-price momentum has weakened after the stock’s big rally last year.
Competitor Analysis
Seeking Alpha
Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q2 2024 earnings date of Thursday, July 18 BMO with a conference call later that morning. You can listen live here. No other volatility catalysts are seen on the calendar.
Corporate Event Risk Calendar
Wall Street Horizon
The Technical Take
I was bullish on BX back in September 2023, and shares increased into the start of 2024. Notice in the chart below that the stock dipped under its long-term 200-day moving average during the market correction that ended in late October, but then BX took off, notching a nearly two-year high by early in 2024. Shares then traded sideways, with support emerging at previous resistance levels. The top-end of the existing range is now in the $133 to $134 area.
Also, take a look at the RSI momentum oscillator at the top of the graph – it’s ranging in a neutral zone between 40 and 60. Not surprisingly, BX’s 200dma has caught up to the stock price. A breakout above $134 would imply an upside measured move price objective to about $153 based on the height of the $115 to $134 range.
Overall, the downtrend from late 2021 through 2022 is a relic of the past, and the current consolidation should lead to a move higher based on a new uptrend having begun 18 months ago.
BX: Shares Consolidate After A Breakout
StockCharts.com
The Bottom Line
I have a hold rating on Blackstone. I like the earnings path and the technicals, but the valuation is simply too close to the stock price today.
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