April 10, 2013

Strong Financial Markets Contribute to Better-Than-Expected Earnings Outlook for Blackstone Group

by Sridharan Raman

Headwinds have become tailwinds for Blackstone Group, as analysts expect the robust stock market and booming housing market to lead to a series of strong earnings reports over the course of 2013.

Private equity group Blackstone Group (BX.N) timed its IPO perfectly, going public only months before the major market indexes recorded their highs in 2007. Now, more than five years later, as the S&P 500 and the Dow Jones Industrial Average finally have managed to regain all the ground they lost during and after the financial crisis of 2008, Blackstone appears poised to finally profit from the sale of or initial public offering of stock in some of its portfolio companies, at least some of which were purchased before the market crashed and that Blackstone has hung on to until now. Indeed, Blackstone’s recent ‘liquidity events’ with respect to some of its portfolio companies during the fourth quarter, combined with unusually bullish forward-looking comments by the company’s management team, have caused analysts to boost their earnings outlook to the point that it now seems likely that the company will report a positive earnings surprise when it announces its first-quarter results next week.

Discussing the fourth quarter’s results — which included three “sizable” realizations of value on portfolio companies, as well as the filing of prospectuses for two initial public offerings of stock in two other Blackstone-owned companies — Blackstone CEO Tony James was notably upbeat. “You can expect 2013 to be bigger than 2012,” he told his conference call listeners, a bold statement to make and one of several that caused analysts to comment on the change in the tone from one of caution with respect to the global economy to one that is optimistic about the company’s performance and its outlook.

In an apparent response to this upbeat outlook, all the revisions to analysts’ earnings estimates for Blackstone’s first quarter have been upward: the I/B/E/S consensus forecast has climbed from 47 cents a share 90 days ago to 53 cents a share as of today the StarMine SmartEstimate is higher still at 55 cents a share, thanks to two top-rated analysts who are calling for the company to earn 58 cents and 64 cents a share for the quarter. (The SmartEstimate puts a heavier weight on the forecasts of top-rated analysts such as this, as well as on the most recent forecasts.) That gave Blackstone a positive Predicted Surprise of 4.3%, as of the end of last week. Since then,the SmartEstimate has dipped slightly and today stands at 53 cents, wiping out that Predicted Surprise. However, the most accurate analysts are preparing investors for a healthy earnings report, by remaining above the consensus.


Blackstone has said that all of its divisions are seeing an uptick in business. In the last earnings call at the end of January, management noted that net realizations and service fees have doubled since 2009, with the greatest progress being made in the fourth quarter. As the stock market has finished recovering all the ground it had lost in the aftermath of the financial crisis, Blackstone’s Hedge Fund solutions business is finally thriving. The booming real estate market is giving the company’s real estate segment, while Blackstone’s Credit and Advisory business stands to gain as more companies take advantage of the strong stock market to go public or of low interest rates to raise more debt capital.

Analysts’ bullishness extends to Blackstone’s earnings for the full year. Over the last 90 days , analysts have boosted their forecast for the company’s 2013 earnings to $2.34 a share, 7.6% higher than the previous forecast of $2.17 a share. That would represent a significant and consistent growth trend in earnings, coming as it would in the wake of profits of $1.77 a share last year and $1.25 per share in 2011.

Blackstone also earns high marks on the StarMine Analyst Revisions Model (ARM), scoring 92 out of a possible 100, a signal that analysts are likely to remain bullish on earnings going forward. Blackstone also scores a perfect 100 on the StarMine Value Momentum (Val-Mo) Model, the StarMine model that offers the most comprehensive overview of a company’s financial position, as it takes into account both valuation metrics as well as momentum signals. At this point in time, all signs point to Blackstone reporting a positive earnings surprise — when it reports its first quarter results on April 18.

SmartEstimates: Thomson Reuters StarMine Professional quantitatively analyzes the earnings estimate accuracy of sell-side analysts and uses this information to create proprietary SmartEstimates®.SmartEstimates help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts.
Predicted Surprise %: The Predicted Surprise% is the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When SmartEstimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. In aggregate, this indicator gets earnings surprises directionally correct 70% of the time.

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