Financial Services Stocks

Blackrock Inc. Quarterly Valuation – July 2014 $BLK

220px-BlackRock_wordmark.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Blackrock (BLK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BlackRock, Inc. (BlackRock) is an investment management firm. The Company provides a range of investment and risks management services. The Company’s clients include retail, high net worth (HNW) and institutional investors, consists of pension funds, official institutions, endowments, insurance companies, corporations, financial institutions, central banks and sovereign wealth funds. The Company’s platform enables the Company to offer active (alpha) investments with index (beta) products and risk management to develop tailored solutions for clients. Its product range includes single- and multi-asset class portfolios investing in equities, fixed income, alternatives and/or money market instruments. In October 2013, BlackRock Inc acquired Macquarie Global Property Advisors Ltd. In January 2014, Forge Group Limited announced that BlackRock Inc. and subsidiaries had ceased to be the substantial holder of Forge Group Limited.
BLK Chart

BLK data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $319.06
MG Value $608.17
MG Opinion Undervalued
Value Based on 3% Growth $229.05
Value Based on 0% Growth $134.27
Market Implied Growth Rate 5.85%
Net Current Asset Value (NCAV) -$1,092.01
PEmg 20.20
Current Ratio 3.26
PB Ratio 2.01

Balance Sheet – 3/31/2014

Current Assets $7,453,000,000
Current Liabilities $2,283,000,000
Total Debt $8,180,000,000
Total Assets $216,297,000,000
Intangible Assets $30,434,000,000
Total Liabilities $189,819,000,000
Outstanding Shares 167,000,000

Earnings Per Share

2014 (estimate) $18.47
2013 $16.87
2012 $13.81
2011 $12.49
2010 $10.71
2009 $6.27
2008 $5.91
2007 $7.53
2006 $3.87
2005 $3.50
2004 $2.17

Earnings Per Share – ModernGraham

2014 (estimate) $15.80
2013 $13.65
2012 $11.31
2011 $9.56
2010 $7.69
2009 $5.92

Dividend History
BLK Dividend Chart

BLK Dividend data by YCharts


Blackrock is an intriguing opportunity for both Defensive Investors and Enterprising Investors.  The Defensive Investor’s only initial concern is the high PEmg ratio, while the Enterprising Investor’s only concern is the level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $7.69 in 2010 to an estimated $15.80 for 2014. This high level of demonstrated growth significantly outpaces the market’s implied estimate of 5.85% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Blackrock Inc. (BLK)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Blackrock Inc. (BLK) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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