NEW YORK (
posted strong year-over-year earnings growth for its fourth quarter Wednesday, but investors were underwhelmed, reflecting skepticism about whether the company's performance will be able justify its high price-to-earnings multiple in the face of a huge merger integration challenge.
After rising nearly 3% to a session-high of $231.13 in early action, the stock was recently down 1.5% to $221.12. Early afternoon volume of 314,926 was ahead of the issue's trailing three-month daily average of 272,146.
Before the opening bell, BlackRock reported adjusted earnings of $379 million, or $2.39 per share for the three months ended Dec. 31. The performance was boosted by organic growth and its acquisition of Barclays Global Investors, the giant exchange traded fund business it bought from
in a deal that closed Dec. 1. The deal, which closed on Dec. 1, gave BlackRock control of the iShares ETF franchise, whose market share is roughly half of the U.S. ETF market, or $373 billion in assets, according to Morningstar.
In the same period a year ago, the company earned $90 million, or 66 cents a share, on an adjusted basis.
BlackRock said the Barclays deal added $94 million to net income, but added that contribution was "more than offset" by $108 million in after-tax expenses related to the transaction, a figure backed out of the adjusted profit along with a number of other one-time items. Nonetheless, a report from JMP Securities analyst Michael Hecht cited a "one-month greater than expected benefit" from the deal as part of the reason BlackRock outperformed his expectations.
Revenues for the quarter were $1.54 billion, a 45% increase versus the fourth quarter of 2008, and 35% higher than the third quarter. Nearly all of that came from BlackRock's investment advisory business, though it also booked $125 million in performance fee revenues and saw $108 million in revenue from its BlackRock Solutions unit, which advises institutions in areas such as risk management and portfolio assessment.
The average estimate of analysts polled by
was for a profit of $2.97 a share in the December period on revenue of $1.56 billion.
BlackRock grew its roughly three trillion dollars worth of assets under management by more than 10%, according to Hecht, who retained a market outperform rating on the stock, including a $275 target price following the report.
BlackRock is widely credited as one of the large financial companies that excelled in navigating the crisis of the past year and a half. It now trades at about 18 times estimated 2011 earnings versus 15 for its peer group of 42 other money managers, according to
Despite his bullish view, Hecht notes that BlackRock may face a challenge in "maintaining excellent investment performance" now that it has doubled in size following the Barclays acquisition, and CEO and Chairman Lawrence Fink didn't sugarcoat the difficulties of the undertaking during the conference call following the results.
"As we stated in the press release, integration is very hard and we are going to have more bumps, and we are not going to have this completed for about two years, as we stated when we closed the transaction," Fink said, adding: "We are on target though, on schedule."
Fink also made reference to the company's recent decision to cede its stake in the Stuyvesant Town-Peter Cooper Village property in New York City to lenders saying: "We are not alone in problems in real estate; we have just been highlighted in the last few weeks, but most of the real estate platforms have had a very difficult time. "
BlackRock competitors were all over the map in afternoon trades.
T Rowe Price Group
was up a few pennies,
was up more than 2% and
rose nearly 3%.
Janus Capital Group
, down 2.8% and 4.6% respectively.
Written by Dan Freed in New York