The Blackstone Group L.P. (BX) is scheduled to report its third-quarter 2014 results on Thursday Oct 16, before the market opens.
Last quarter, Blackstone delivered a positive earnings surprise of 64.3% on the back of top-line growth driven by an impressive rise in performance fees. This was, however, partly offset by higher expenses. Moreover, this investment manager has delivered a positive earnings surprise in the last four trailing quarters, with an average beat of 42.5%.
Will Blackstone be able to beat the estimates this time around? Or will it disappoint? Let us see how things have shaped up for this announcement.
Factors Influencing Q3 Results
Dealing primarily in asset management and private equity businesses, Blackstone does not face substantial threat from the overall low interest rate environment. The company derives revenues mainly from performance fees.
Though the overall market remained volatile during the quarter, major U.S. equity indexes witnessed an uptick that favorably impacted the investment management industry. We believe Blackstone has benefited from this trend.
Further, an improvement in Blackstone’s fee-earning and total assets under management (AUM) should significantly support its top line. Also, with the gradual improvement in overall economic scenario, the company’s fund-raising ability should aid performance fee growth, backed by the increasing risk appetite of investors.
However, Blackstone’s inability to reduce expenses remains a major concern. The past few quarters have witnessed rising expenses and this trend is not expected to be reversed this time as well. We believe that compensation and benefit costs will continue to rise owing to the company’s well-performing funds.
Blackstone’s activities during the quarter failed to win analysts’ confidence. As a result, the Zacks Consensus Estimate declined 8.6% to 85 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Blackstone is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: The Earnings ESP for Blackstone is -5.88%. This is because the Most Accurate estimate of 80 cents is lower than the Zacks Consensus Estimate of 85 cents.
Zacks Rank: Blackstone’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks to Consider
Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for PrivateBancorp, Inc. (PVTB) is +2.13% and it has a Zacks Rank #1. The company is slated to report on Oct 16.
Capital One Financial Corporation (COF) has an Earnings ESP of +2.08% and carries a Zacks Rank #2. It is scheduled to release third-quarter results on Oct 16.
BB&T Corporation (BBT) has an Earnings ESP of +1.41% and carries a Zacks Rank #3. It is scheduled to report for the third quarter on Oct 16.
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