BlackRock, Inc. (NYSE:BLK) Board member John Varley has purchased 427 shares of the company’s stock at an average price of $233.59 per share, bringing his direct ownership of BlackRock stock to over 1,000 shares. Insider purchases are bullish signs (see our analysis of studies on insider trading), and we think that this is because insiders will tend to buy only when they are confident in the company’s prospects; if they are neutral, or even slightly positive, they will instead prefer to diversify their investments. Another Board member was aggressively buying BlackRock in October, when the stock was trading at about $190 (find more insider buys at BlackRock).
The $40 billion market cap asset manager reported good results for Q4 2012 last week. Assets under management swelled 8% from the beginning of the year, to a total of $3.8 trillion. BlackRock, Inc. also improved its ratio of revenue to AUM (with revenue increasing 14%) and its operating margins (as operating income grew 24%). With net income up by about as much as operating income, and share count actually decreasing, the company had $3.93 in earnings per share for the fourth quarter. This was up from $3.05 in the fourth quarter of 2011 and up from $3.65 in the previous quarter of 2012. For the year as a whole, BlackRock earned $13.79 per share and as a result its current price is 17 times trailing earnings.
Wall Street analysts believe that the asset manager will experience continued earnings growth. Consensus is for BlackRock, Inc. to earn $15.47 in 2013 and $17.40 in 2014, chopping the P/E multiple down to 14 by the end of the forward year. There would then presumably be more improvement on the bottom line, as that P/E generally indicates expectations of at least modest earnings growth.
Billionaire Ken Griffin’s Citadel Investment Group increased its stake in BlackRock during the third quarter of 2012 to a total of about 370,000 shares (check out Griffin’s stock picks). Legg Mason Capital Management, managed by Bill Miller, owned about 550,000 shares at the end of September (see more stocks Legg Mason owned). The largest holder of the stock in our database of 13F filings from hedge funds and other notable investors was Highfields Capital Management; that fund, managed by Harvard Management alum Jonathan Jacobson, increased the size of its position by 12% during the quarter to report a position of almost 700,000 shares (research more stocks Jacobson likes).
Two other asset managers look slightly cheaper than BlackRock:
BlackRock does have a good record of growth, but other large-cap asset managers might be cheaper. We took a brief look at State Street Corporation (NYSE:STT), Ameriprise Financial, Inc. (NYSE:AMP), Franklin Resources, Inc. (NYSE:BEN), and T. Rowe Price Group, Inc. (NASDAQ:TROW). The two larger companies- State Street and Franklin- have trailing earnings multiples between 13 and 15, so something of a discount to where BlackRock trades. Earnings growth in these companies’ most recent quarterly reports compared to the same period in the previous year was at about 20% as well, and so investors interested in the asset management industry should consider them as well as, or possibly instead of, BlackRock.
Ameriprise and T. Rowe Price carry trailing P/Es of 18 and 22, respectively, though Ameriprise in particular has been singled out as having high growth prospects with the Street’s estimates placing the current price at only 10 times 2013 earnings. Ameriprise also stands out as being the only one of these five companies to report a drop- and a large one at that- in earnings in its most recent quarter versus a year earlier. T.Rowe Price’s financial performance has been very strong, though we think that is accounted for by its high multiple.
If we put some weight on the recent insider purchase, then BlackRock joins State Street and Franklin Resources as asset managers with trailing earnings multiples in the teens and high recent earnings growth. That is a good formula for at least the beginning of a value analysis and these three companies are worth further research in our view.
Disclosure: I own no shares of any stocks mentioned in this article.
