BlackRock, Inc. (BLK), Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM): What This Earnings Report Tells Us About the Market

BlackRock slightly beat analyst estimates. The consensus EPS estimate for the quarter was $3.58. The company reported EPS of $3.65. BlackRock beat analyst estimates by 2%. BlackRock’s performance closely mirrors the results of other banks.

Peer comparisons

Goldman Sachs Group, Inc. (NYSE:GS), like BlackRock, relies heavily upon the equity markets for growth. Goldman Sachs Group, Inc. (NYSE:GS) was able to generate 12% year-over-year revenue growth in its asset management division. Goldman Sachs Group, Inc. (NYSE:GS)’s revenue growth outpaced BlackRock’s revenue growth (7% year-over-year). Goldman Sachs Group, Inc. (NYSE:GS) trades at 10 times earnings compared to BlackRock’s 17.9 earnings multiple thus, it is undervalued compared to BlackRock, Inc. (NYSE:BLK).

JPMorgan Chase & Co. (NYSE:JPM) was phenomenal this past quarter, generating EPS growth of 34.17% year-over-year. The EPS growth was driven by declining loan losses, improving fee income from non-lending activities, along with declining legal/administrative expenses. JPMorgan Chase & Co. (NYSE:JPM)’s asset management division was able to grow revenue 26% year-over-year compared to BlackRock’s year-over-year growth of 7%.

BlackRock’s competitive environment is becoming increasingly crowded. The universal banks (JPMorgan Chase, Wells Fargo, Goldman Sachs, and Bank of America) plan to increase fee income in a space that’s highly contested (asset management).

BlackRock’s response has been to invest aggressively into its operations and its team. BlackRock’s profit margins aren’t as high they could be, even though the company operates in a high margin space and operates at larger economies of scale. The lower profit margins are driven by the need for BlackRock, Inc. (NYSE:BLK) to maintain its competitive edge. BlackRock isn’t sacrificing long-term growth for short-term profitability.

Conclusion and growth outlook

Analysts anticipate BlackRock to grow earnings 16.70% for the current fiscal year. The estimated growth is fairly reasonable when compared to the outstanding results other financial companies were able to report. BlackRock should meet analyst estimates due to increasing demand for stocks and stock management services; along with the barriers of entries that insulate BlackRock from its other competitors such as brand, product positioning, and product quality.

BlackRock has reported a fairly strong quarter. BlackRock’s results were in line with expectations, but on the bright side, the company’s fundamentals have not deteriorated. Growth remains stable.

The article What This Earnings Report Tells Us About the Market originally appeared on Fool.com and is written by Alexander Cho.

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