Is Blackstone Stock A Buy After Earnings? (NYSE:BX)

Elevator Pitch

My Buy investment rating for Blackstone Inc.’s shares (NYSE:BX) remains unchanged.

I determined Blackstone to be “a good long-term investment” in my earlier August 8, 2022 article for the company. My latest article analyzes BX’s most recent quarterly financial results. After analyzing the key metrics relating to Blackstone’s Q3 2022 disclosures, I come to the conclusion that BX should continue to perform well in the near term, while the positive long-term prospects for the stock remain unchanged. As such, I think that Blackstone stock is a Buy after earnings.

What Were Blackstone’s Expected Earnings?

The sell-side analysts had expected BX to record distributable earnings per share of $1.01 for the third quarter of the current year, according to consensus estimates. In other words, Wall Street had previously forecasted that Blackstone’s distributable earnings would fall by -21% YoY as compared to its Q3 2021 bottom line of $1.28 per share.

When Did Blackstone Report Earnings?

Blackstone reported its actual Q3 2022 financial results last week with a press release issued on Thursday, October 20, 2022 before the market opened.

BX’s actual third-quarter earnings were a positive surprise. Distributable earnings per share for Blackstone declined by a narrower-than-expected -17% YoY to $1.06 in Q3 2022. This implied that Blackstone’s bottom line for the third quarter of 2022 turned out to be +5% above market expectations.

In the subsequent section, I discuss the key metrics that contributed to Blackstone’s Q3 EPS beat.

BX Stock Key Metrics

In my opinion, investors need to watch three key metrics that were disclosed as part of BX’s most recent Q3 2022 earnings announcement.

The first key metric is fee related performance revenues. Blackstone’s fee related performance revenues jumped by +408% YoY and +7% QoQ to $372 million in the third quarter of this year.

At the company’s Q3 2022 earnings call, BX attributed the robust growth in fee related performance revenues to “the continued scaling of our perpetual strategies combined with strong investment performance across those strategies.” Notably, I had emphasized in my early-August write-up for Blackstone that “a rise in the percentage of AUM contributed by perpetual capital translates into more stable and higher-quality earnings for BX”, and this is exactly how things have played out for Blackstone in the recent quarter.

BX’s second noteworthy metric is the company’s non-compensation operating expenses. Blackstone’s non-compensation operating expenses decreased by -6% QoQ from $262 million in Q2 2022 to $246 million for Q3 2022. Specifically, the Q3 2022 non-comp ratio (non-compensation costs as a proportion of revenue) for Blackstone was a reasonably low 9.5%.

The company’s management comments relating to expense optimization at its third-quarter results briefing were particularly encouraging. BX noted at its Q3 2022 investor call that its “disciplined approach to cost management” drove the decline in non-compensation operating expenses for the company in the most recent quarter. More importantly, Blackstone stressed at the recent quarterly earnings briefing that “we feel very comfortable in our ability to control and carefully manage costs in our business.” This sends a strong signal to investors that Blackstone is in a good position to keep its non-comp ratio low and maintain a healthy level of profitability going forward.

Blackstone’s third key metric is its fee-earning Assets Under Management or AUM. Fee-earning AUM for BX grew by +34% YoY from $528.4 billion for the third quarter of the prior year to $705.9 billion in the third quarter of 2022. Specifically, Blackstone’s fee-earning AUM benefited from Q3 2022 inflows amounting to a substantial $51.5 billion notwithstanding a tough market environment.

What To Expect After Earnings

Following the company’s Q3 2022 earnings disclosure in the previous week, the major factors influencing Blackstone’s near-term financial performance expectations will be its fee related performance revenues and Fee Related Earnings or FRE margin in my view.

Blackstone revealed in its Q3 2022 earnings media release that its “Invested Performance Eligible AUM” increased by a strong +26% YoY to $494.4 billion as of September 30, 2022. As such, it is reasonable to expect BX to be able to sustain the company’s fee related performance revenue growth in the near future.

Separately, BX guided at its most recent quarterly investor briefing that its FRE “margin to be in this same 56% area in line with 2021”, in view of the fact that the company’s current FRE margin “is tracking above our previous expectation.” It is noteworthy that an analyst from Credit Suisse (CS) who attended BX’s Q3 results call referred to Blackstone’s comments on 2022 FRE margin outlook as “a pickup in guidance.”

In a nutshell, I have a positive view of Blackstone’s short-term outlook, considering stable FRE margin and the continued growth in fee related performance revenues.

Is BX A Good Investment Long-Term?

I have already noted in my August 8 article that I view Blackstone as “a good long-term investment.”

There is nothing significant disclosed as part of BX’s most recent quarterly results that changes my favorable long-term view of Blackstone. In fact, I see encouraging signs such as “continued scaling of our perpetual strategies” and “disciplined approach to cost management” as indicated by management’s comments referred to earlier in this article. As such, my assessment is that Blackstone is well-positioned to deliver more stable revenue (increase in perpetual capital AUM translates in lower volatility) and higher margins (cost discipline) in both the short term and long run.

What Is The Target Price For Blackstone?

The current sell-side consensus price target for Blackstone is $106.41, which suggests that investors can potentially enjoy a gain of +25% if they buy into BX’s shares now. As a reference, Blackstone’s last traded price was $85.43 as of October 21, 2022.

A capital appreciation potential of +25% is definitely sufficient to warrant a Buy rating for Blackstone’s shares. The $106.41 consensus target price for BX is equivalent to a consensus forward fiscal 2023 P/E multiple of 19.7 times. The implied P/E multiple derived from the consensus price target doesn’t appear to be very demanding, as this is just 7% higher than BX’s five-year mean forward P/E multiple of 18.7 times as per S&P Capital IQ’s valuation data.

Is BX Stock A Buy, Sell, Or Hold?

BX stock is still a Buy in my opinion. Blackstone’s Q3 2022 financial performance was good, and I continue to view BX as an investment pick for the long run.