We expect BlackRock, Inc. (BLK) to beat expectations when it reports fourth-quarter and full year 2014 results on Jan 15, before the market opens.
Why a Likely Positive Surprise?
Our proven model shows that BlackRock is likely to beat earnings as it has the right combination of two key components. Note that 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) to have a significantly higher chance of beating earnings.
Zacks ESP: The Earnings ESP for BlackRock is +0.21%. This is because the Most Accurate estimate of $4.72 is above the Zacks Consensus Estimate of $4.71 respectively.
Zacks Rank: BlackRock’s Zacks Rank #3 (Hold) increases the predictive power of ESP. The combination of the company’s Zacks Rank #3 and a positive ESP makes us confident of a positive earnings beat.
Factors to Drive Q4 Results
BlackRock’s diversified footprint and strong product mix along with increased focus on organic growth has assisted it in improving revenue generation over the years, with the trend continuing in the first nine months of 2014 as well. We expect this top-line growth to continue in this quarter as well given the company’s brand initiatives for the iShares and ETF business.
However, management expects fee income to be adversely impacted by lower level of assets under management (AUM) in the upcoming release as compared to AUM as of Sep 30, 2014. We believe that this should slightly weigh on revenue in the quarter.
In addition, the company’s profitability is expected to be burdened with rising costs, with management predicting an increase in general and administrative expenses. The rise in G&A expenses owing to seasonality as well as higher marketing costs will likely make the third-quarter’s operating margin unsustainable in this quarter.
BlackRock’s activities during the quarter proved inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate declined 1.7% to $4.71 per share over the last 7 days.
Stocks That Warrant a Look
BlackRock is not the only firm looking up this earnings season. We also anticipate earnings beat from following finance companies:
Janus Capital Group, Inc. (JNS) has an Earnings ESP of +5.00% and carries a Zacks Rank #1. It is scheduled to report results on Jan 22.
BancorpSouth, Inc. (BXS) has an Earnings ESP of +3.23% and carries a Zacks Rank #2. It is scheduled to report results on Jan 21.
Federated Investors, Inc. (FII) has an Earnings ESP of +2.63% and a Zacks Rank #2. It is slated to report results on Jan 22.
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