Credit Suisse maintains an UNDERPERFORM on BlackRock (BLK) and cuts its target $16, to $176. CS cites:
- an updated estimate of equity marks and its impact on management fee revenue
- a negative revision to our estimate for performance fees in BLK’s alternative strategies in 2Q08 through 4Q08
- a negative revision to our estimate for BLK’s investment income (which includes a large contribution from real estate, hedge funds, and private equity)
However, Credit Suisse gives plenty of blame to cash-starved Merrill (MER) for BLK’s recent dive. There is overhang from the potential sale of MER’s stake, but there might be upside, too:
We believe the potential sale of part or all of MER’s ownership in BLK (49% of shares outstanding, $10 billion of value) has been the driver of the stock’s recent underperformance.
Alternatively, if MER could offer a long-term distribution contract through the its brokerage channel to BLK funds in exchange for allowing MER to sell part of its ownership, we believe this could be a fundamental positive for BLK. Also, a larger float could trigger an index addition to some of the large equity indexes like the S&P 500. This would also cause an increase in large passive investors to the company’s shareholder list, which could decrease share price volatility.
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