High interest rates and a deal-making lull have hampered asset managers over the past two years, but Blackstone (BX) finally sees light at the end of the tunnel amid forecasts for Fed rate cuts and a bottoming real estate market. With nearly $200 billion in undrawn capital itching to be invested, Blackstone stock is trading near a buy point and within striking distance of record highs.
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Blackstone is the world's largest alternative asset manager with $1.04 trillion in assets under management as of Dec. 31, up 7% in 2023 to a record high. It specializes in "alternatives," the likes of real estate, private equity and infrastructure investments, rather than conventional stocks and bonds. At the end of 2023, the firm had around 12,500 real estate assets and more than 230 portfolio companies.
Blackstone crossed the $1 trillion threshold in June 2023, becoming the first alternative asset manager to do so, overshadowing the likes of Ares Capital (ARCC), Apollo Global Management (APO), KKR (KKR), Blue Owl Capital (OWL), Carlyle Group (CG).
Despite the recent industry headwinds, alternative asset managers outperformed the market in 2023. Shares of these companies gained 45% in 2023, while traditional asset managers gained 16%, Morgan Stanley analyst Michael Cyprys wrote in a January note to clients, adding good news is "in the price." Broader financial stocks rose 12% while the S&P advanced 24% for the year.
The stock price doesn't tell the whole story as deal and investment activity fell on the year. But Blackstone expects the market to improve. Blackstone President Jon Gray said in a Feb. 8 market update that "2024 is going to be a year of reacceleration."
The Real Estate Bottom
Blackstone's distributed earnings, which include cash used to pay dividends to shareholders, climbed to $1.11 per share in the fourth quarter from 93 cents in the second quarter. However, full-year earnings tumbled nearly 23% in 2023 to $3.95 per share, ending a four-year streak of gains.
Meanwhile, other key performance metrics lagged in 2023 due to real estate market weakness and high interest rates that stifled deals and investments.
Blackstone's opportunistic real estate funds declined 3.8% in the fourth quarter and 6.3% for the year. Its Core+ real estate funds, which focus on stabilized real estate declined 4.6% in the December period and 4.3% for the year, respectively.
The company in 2023 deployed $15 billion in capital on real estate investments, down from $47.9 billion in 2022.
Blackstone believes real estate values are bottoming, but it doesn't expect the rebound to happen overnight or a V-shaped recovery.
"There are still plenty of assets in the market that may run into trouble because they were financed at a time when rates were much lower," said Gray, Blackstone's president. "While you're in this period bouncing along the bottom, this is when we want to deploy capital. Where you can see that light at the end of the tunnel, but it's not yet priced into the market."
Revenue Takes A Hit
Revenue also took a major hit in 2023.Blackstone generates revenue from management and performance fees. And real estate investments have been Blackstone's largest revenue driver, FactSet data shows.
Total segment revenues fell 23% in 2023 to $9.69 billion amid real estate pressures and a lull in private equity transactions.
However, real estate revenue halved in 2023 and only accounted for 35% of total 2023 revenue, dropping from 54.3% the year prior.
Blackstone's private equity revenue rose 2.7% in 2023 after falling 28.2% in 2022. Meanwhile, credit and insurance revenue growth slowed over the past three years to 22.4% in 2023 from 75.8% in 2021. Hedge fund solutions revenue rose 6.4% for the year, representing 8% of 2023 revenue, up from 5.8% in 2022.
Blackstone holds a 19.7% revenue share of the $52.1 billion total market for diverse alternative investment managers, according to FactSet.
Plenty Of Dry Powder
"We had been in an environment where the central bank, the Fed in the U.S. had been raising rates. But now with inflation really coming down, the Fed has air cover to lower rates," Gray said in his market update. He doubted they will cut rates as quickly and deeply this year as the market hopes, and expects some incremental slowdown as an extended period of elevated rates will add more pressure.
"I'd say overall, it feels pretty good. We think this moment in time is when you want to lean in and deploy capital after a downturn, before that proverbial all-clear sign," Gray said. "But all the signs are pointing to 2024 being a more active year."
And Blackstone has heaps of "dry powder" to deploy. Blackstone's undrawn capital available for investment rose to $197.3 billion as of the fourth quarter, up from $186.6 billion the year prior.
The company has $80 billion earmarked for private equity and $65.2 billion for real estate investments. It has $45 billion available for credit and insurance investments, and $7.1 billion for its hedge fund solutions pursuits.
A Busy Start For The Year
Blackstone is putting that to work and off to a busy start for the year.
The company on Jan. 19 announced plans to take Canadian real estate firm Tricon Residential private for $3.5 billion. It followed that with a $300 million minority growth investment in engineering and technical services firm Salas O'Brien on Jan. 22, according to Bloomberg.
Blackstone Credit and Insurance and renewable energy developer Arevon closed a $350 million financing round in February. On Feb. 14, Blackstone announced an equity investment in drive-thru beverage business 7 Brew Coffee for an undisclosed amount.
On Feb. 27 Blackstone completed a $2.3 billion all-cash acquisition of Rover, the top online marketplace for pet care, which was first announced Nov. 29. Blackstone Credit and Insurance on March 12 provided $600 million in financing to Aligned Data Centers to support development of a new data center in Utah.
Elsewhere, Blackstone is mulling a bid for skin care company L'Occitane, which has a market value of about $4.9 billion, Bloomberg reported in early February.
AI Opportunities
Meanwhile, Blackstone continues to capitalize on the artificial intelligence boom. The company in 2021 completed its acquisition of data center operator QTS Realty Trust in a deal valued around $10 billion, which has since ballooned to more than $25 billion, according to Bloomberg.
Blackstone utilizes AI for data analysis and investment insights and plans to use the technology to boost productivity, as well as invest in the ecosystem, Chief Financial Officer Michael Chae said during the BofA Securities Financial Service Conference on Feb. 21.
"There's obviously a bit of a gold rush going on," Chae said. "We're not in the business of investing in early-stage-like, high valuations in the space. But I would say first derivative or second derivative plays, we're leaning into."
He noted Blackstone is now one of the leading owners and investors in data centers, which directly benefit from the AI ecosystem.
"We're actively focused on investments in the ecosystem at larger scale, in businesses that will benefit from supporting that progress," Chae said.
Analyst Outlook
Meanwhile, analysts are positive on Blackstone's outlook.
Morgan Stanley's Cyprys on Jan. 24 lifted his price target on Blackstone stock to 144 from 120 and maintained an overweight rating on shares.
Blackstone offers "a best-in-class franchise with multiple growth engines," as well as an underappreciated private credit business that should see earnings reaccelerate as real estate markets recover, Cyprys wrote. However, his fiscal 2024 and 2025 estimates are "broadly unchanged" despite macro improvements as he views the earnings recovery as "already baked in."
BMO Capital on Jan. 26 raised its price target on Blackstone stock to 101 from 95 and kept a market perform rating on the shares after Blackstone's fourth-quarter earnings beat from Jan. 25. The firm highlighted that 2023 should prove to be a cyclical bottom for Blackstone. It expects earnings growth to resume in 2024, driven by fundraising benefits and a better environment for realizations.
Blackstone is expected to report its first-quarter results on April 18. However, the company has not released an official earnings date yet.
FactSet analysts forecast a 2% rise in distributable earnings to 99 cents per share on $2.58 billion in revenue. Total assets under management are seen increasing to $1.068 trillion.
Blackstone Stock
along with Airbnb (ABNB,) which replaced Lincoln National (LNC) and Newell Brands (NWL). Shares rebounded about 76.5% in 2023 after tumbling more than 42% in 2022.
BX stock is trading in a 10-week cup-with-handle base with a 131.29 buy point, according toMarketSurge charts.
Shares have eased about 5% so far this year. Still, they are working toward their record high of 149.78 from November 2021.
Blackstone has a 73 Composite Rating out of a best-possible 99. The Composite Rating combines various technical indicators into one easy-to-read score.
Shares also have a 43 EPS Rating. Blackstone's relative strength line has fallen from its December 2023 highs but the stock still has a muscular 85 RS Rating.
You can follow Harrison Miller for more stock news and updates on X/Twitter@IBD_Harrison
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