A filing with the SEC has revealed that BlackRock, Inc. (NYSE:BLK) Board member Thomas Montag directly purchased 5,000 shares of stock in the $43 billion market cap asset manager on April 18th at an average price of about $249 per share. Studies show that stocks bought by insiders tend to exhibit a small outperformance effect (read our analysis of studies on insider trading). We think that this is because insiders normally have an economic incentive to sell, not buy, shares- namely, that they should want to diversify their wealth away from the company except when the expected returns are strong enough to outweigh this incentive.
In the first quarter of 2013, BlackRock, Inc. (NYSE:BLK) grew its revenue by 9% versus a year earlier though lower performance fees brought revenue down a bit on a q/q basis. Earnings came in 10% higher than in the first quarter of 2012, and actually slightly higher than Q4 2012 as well though this was due to non-operating items. With the company buying back a decent number of shares, earnings per share increased by 15% to $3.62 for the quarter.
The market is expecting moderate to high growth in EPS at BlackRock, Inc. (NYSE:BLK)for some time, judging by the fact that the stock trades at 18 times its trailing earnings. The company does return considerable cash to its shareholders, with a dividend yield of 2.7% as well as the significant buybacks, though in our view BlackRock, Inc. (NYSE:BLK) does have to grow its actual business at a decent rate in order to justify that valuation in addition to its financial engineering activities. We are certainly seeing good numbers at this time, and so it is probably worth further research to see just how well the company needs to do compared to current performance in order to prove a good value.
Hedge funds were not very excited about BlackRock, Inc. (NYSE:BLK) in the fourth quarter of 2012, with the three largest shareholders in our database of 13F filings actually selling shares in the previous three months. Jonathan Jacobson’s Highfields Capital Management cut its stake by 41%, though the fund still owned about 410,000 shares (find Jacobson’s favorite stocks). Bill Miller’s Legg Mason Capital Management reported a position of about 480,000 shares, which was 13% smaller than what it had owned at the beginning of October (see Miller’s stock picks). Adage Capital Management, managed by former Harvard Management employees Phil Gross and Robert Atchinson, trimmed its holdings to a little over 310,000 shares (check out more stocks Adage owned).
Other asset managers include Legg Mason, Inc. (NYSE:LM), State Street Corporation (NYSE:STT), Franklin Resources, Inc. (NYSE:BEN), and T. Rowe Price Group, Inc. (NASDAQ:TROW). Legg Mason, Inc. (NYSE:LM) is actually unprofitable on a trailing basis, though the sell-side expects the company to recover fairly quickly and so the forward earnings multiple is a fairly respectable 14. The most recent data shows that 12% of the float is held short. State Street Corporation (NYSE:STT) and Franklin Resources, Inc. (NYSE:BEN) carry small discounts to BlackRock, Inc. (NYSE:BLK) in terms of their trailing earnings. State Street has been struggling a bit in terms of revenue- which was up only 1% in its most recent quarter compared to the same period in the previous year. Franklin appears to be operating at a decent level of performance, but that company’s numbers for Q1 have not come in yet and so we’d be careful of directly comparing its most recent results to those for BlackRock, Inc. (NYSE:BLK) as we saw that company’s revenues had dipped.T. Rowe Price Group, Inc. (NASDAQ:TROW) has been recording the most impressive results: in Q4 2012 revenue grew 17% from a year ago and net income was up by 23%. However, the market is already pricing in the highest growth out of this peer group resulting in a trailing P/E of 22.
BlackRock looks like it could be about fairly valued if it continues to grow at current rates, given its current pricing, or possibly even a bit cheap. With the insider purchase potentially reflecting informed optimism about the company, value investors may want to look at the stock in more detail as well as at Franklin Resources.
Disclosure: I own no shares of any stocks mentioned in this article.