Blackstone (NYSE: BX) and airbnb (ABNB) will be added to the S&P 500 later this month. Two very different stocks, but both rose on news released earlier this month.
but you should be Are two soon-to-be SPX members buyers today? The data suggest a delay in the short term. Nonetheless, I reiterate my Buy rating on Blackstone based on its valuation, growth trajectory, and technical upside potential.
Short-term performance of S&P 500 new stocks is not so optimistic
According to Bank of America Global Research, BX is the largest alternative asset manager in the world. Debuting on the New York Stock Exchange in 2007, Blackstone manages investments and provides services across four business units, including private equity, real estate, credit and hedge fund solutions.
New York-based asset management and custody firm hits $125 billion market cap Banking companies in the financial sector trade at a whopping trailing 12-month GAAP P/E ratio of 65 and pay a whopping 3.2% dividend yield. Ahead of next month’s earnings report, the short interest on the stock is just 2.7%, with an implied volatility of 26%.
Back in July, Blackstone reported distributable earnings per share of $0.93, beating estimates by just a penny, but less than $0.97 in the first quarter of this year. The decline came as total assets under management topped $1 trillion, while the firm’s best-performing strategies were corporate private equity and private credit, while opportunistic real estate funds were flat.
Crucially for the company, second-quarter expense-related earnings came in at $1.14 billion, or $0.94 per share, up from both the previous quarter and the year-ago period. A possible upside catalyst comes from private wealth inflows and net flows after the end of BREIT restrictions (perhaps sometime next year). Blackstone appears poised to increase fees and benefit from rising asset values as markets generally recover.
Key risks include a possible deterioration in the macroeconomic and capital market environment, legal and political uncertainty, and the prospect of enhanced regulatory measures and tax reforms.
In terms of valuations, Bank of America analysts expect earnings to fall about 20% this year, but earnings per share are expected to grow rapidly in the year ahead, with earnings per share expected to approach or exceed $7 in 2025. Bloomberg’s consensus forecast isn’t as rosy as BofA’s forecast, but it’s still a healthy growth trajectory. Meanwhile, dividend increases are expected in the coming quarters, making it possible for the asset manager to yield more than 5% soon.
Blackstone: Earnings, Valuation, Dividend Yield Forecasts
Historically, Blackstone has traded at about 21 times forward operating profit forecasts. If we assume a normalized EPS of $6 and apply a P/E ratio of 20, the share price should be close to $120, making it a buy today. I do admit that its price-to-book ratio is high, but fairly rapid earnings growth makes me less concerned about this metric. Furthermore, asset prices are generally much better today than they were a year ago.
Blackstone: After a challenging 18 months, valuation metrics are not impressive on the surface
BX looks expensive compared to its peers, but earnings expectations are once again strong, as evidenced by its B-grade Growth Rating and impressive earnings metrics. While Wall Street analysts haven’t raised expectations significantly lately, Blackstone’s technical price action may be the best in the industry, earning it an A Momentum rating.
Looking ahead, corporate activity data provided by Wall Street Horizon showed an unconfirmed third-quarter 2023 earnings date for BMO on Thursday, October 19. Until then, the stock will replace Lincoln National in the S&P 500 on Sept. 18, 2023 — just as Blackstone’s management team is scheduled to host a conference in Minneapolis, MN on Sept. 19-20. Before speaking at the Piper Sandler Heartland Summit 2023.
Corporate Events Risk Calendar
The uptrend in BX did not start with positive index inclusion news in September. Note that in the chart below, shares have formed a bearish-to-bullish reversal pattern from the December 2022 bear market low just above $70, through a series of higher highs and higher lows. After taking a discount of more than 50%, the stock has bounced back from the trough by about the same percentage. Last summer, just after I issued a Buy rating, the stock broke through a downside resistance line.
I think near-term resistance is close to current levels, so I wouldn’t be surprised if the BX pulls back modestly – which would be in line with the historical trend of new S&P 500 stocks paring some of the pre-news epidemics. From a long-term perspective, though, it’s encouraging to see that the stock’s 200-day moving average is now sloping slightly up, and its 50-day moving average is comfortably above its 200-day average — both signs that the bulls are in control . I’d like to see an improvement in the RSI momentum indicator, but support is near $95.
Overall, longs with stops below $90 appear to be a solid risk/reward strategy.
BX: Bearish-to-bullish reversal intact, near-term resistance near $109, support at $95
the bottom line
After an impressive rally over the past few months, I reiterated my Buy rating on Blackstone, but acknowledged that a near-term pullback is possible. Valuations are still reasonable today, and inclusion in the S&P 500 may signal less price strength following the headline events earlier this month. In the meantime, the chart remains constructive.