BlackRock's Q4 Lifts; FVE up to $750 per Share

While there was little in wide-moat-rated BlackRock's BLK fourth-quarter earnings to alter our long-term view of the firm, we expect to increase our fair value estimate to around $750 per share from $620 to account for the continued recovery in the equity, credit and currency markets following the steep COVID-19 induced sell off in the first quarter of 2020. BlackRock closed out the December quarter with a record $8.677 trillion in managed assets, up 11.1% (16.8%) sequentially (year over year), with organic growth, market gains and favorable currency exchange all adding to the improvement in assets under management.

Net long-term inflows of $116.2 billion during the fourth quarter were better than the positive $65.1 billion quarterly run rate we'd seen from BlackRock the prior eight calendar quarters, as well as our own expectations for $100.6 billion. While iShares continues to be a big driver of BlackRock's organic growth (generating $78.8 billion in inflows during the fourth quarter), flows into actively managed products (which were $31.1 billion during the December quarter) continue to be strong. Overall, the company generated $257.3 billion in net inflows into its long-term products last year, putting organic AUM growth for long-term assets at 3.7% during 2020 (about midway between our expectations for 3%-5% annual organic growth for the firm's long-term assets on an ongoing basis).

Average long-term AUM growth of positive 12.1% year over year during the fourth quarter translated into a 9.8% increase in base fee revenue growth, with product mix shift primarily responsible for a 3.1% decline year over year in the firm's realization rate. Total revenue was up 12.6% when compared with the prior year's quarter and increased 8.1% on a full-year basis (in line with our full-year forecast). As for profitability, BlackRock posted a 140-basis-point increase in adjusted operating margins to 40.2% during 2020 (better than our full-year forecast of 38.8%).

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