Blackstone $125 Hold.
The easy money has been made and the real estate and China exposure makes me a little cautious.
Blackstone (NYSE:BX) is the world’s largest alternative asset manager with over $1 trillion in assets under management, and that does give it competitive advantages of brand recognition, scale, network and large amounts of data.
That said, the fee business went nowhere in the last 10 years, from 6.8Bn to 7.3Bn at a CAGR of less than 1%.
Capital Gains was the real story, in 2021, it made $14Bn! and in 5 other good years, it made between $2Bn and $3Bn each year. Not surprisingly, the 1-year, 5 year, and 10% performances were very impressive at 39%, 284% and 317%
When investors put their money into BX, they thus have to live with considerable ups and downs in the company’s profits — depending on the performance of the assets BX manages, there will be better and weaker years.
Forecasts: Consensus estimates are calling for 20% earnings growth and mid-teens revenue growth for the next 3 years, and the good revenue growth forecast suggests that these will be quality fee-based earnings.
I want to highlight two risks,
- Real Estate is 40% of Fee-based asset management and 45%+ of total managed assets.
This is from management’s last earning call.
“Real estate…will have a number of negative headlines coming out over the year. And so, what happens is, I think investors tend to take their time in terms of pivoting back to the space…so, there’s caution… it will take a bit of time on both the institutional and the individual investor side…it will take multiple quarters of strong performance where people say, hey, I’m comfortable doing this.”
- The China exposure, from an analysts report.
“Furthermore, recent news reports indicate that BX’s CEO remains very close with the Chinese leadership and appears set to double down on his investments in the country, further increasing BX’s risk in the current environment and prompting us to grow even more bearish on the stock at its current price. While BX does not disclose its AUM exposure to China in its filings, it is evident that the company has a substantial – and growing – presence in the country.”
Valuation – Compared to its longer-term averages at 25X earnings it is about 20% overpriced, but then so is everything else…forward returns would likely be mediocre.
