NoDerog Introduction If you ever played Monopoly, you probably know there's a point in the game where you know it's game over. Once someone has bought enough hotels, it's over for the others. The moment someone has enough cash flow, they become invincible, capable of withstanding any "rent" charges, and able to buy any property that's for sale.
Although the real world is very different from the Monopoly game, it feels like the Blackstone Inc. ( NYSE: BX ) figured out how to get ahead many years ago, as it has turned into the largest private equity company in the world. Its CEO, Steven Schwarzman, took home roughly $900 million last year and is one of the most important guests on business TV.
The same goes for Jon Gray, Chief Operating Officer of the Blackstone. Whenever one of them makes public comments, people listen. I cannot even count the number of articles of mine that include quotes from Jon Gray, who often has great real estate intel.
On top of that, the Blackstone stock has been a great source of capital gains and income. Currently yielding 2.4%, the giant has returned roughly 570% over the past ten years, crushing the S&P 500 by almost 340 points! Data by YCharts As the company just released its earnings, I'll use this article to assess the risk/reward for the BX ticker and explain what this giant sees in the market and economy.
After all, even for people who have no BX stock (like myself), intel from BX is highly valuable for any investment purpose. So, let's dive into the details! If There's An Opportunity, BX Is Ready Blackstone, which is also the world's largest alternative asset manager, with roughly $1.1 trillion (+7% year-over-year) in assets under management ("AUM"), is doing very well in this environment.
According to Mr. Schwarzman, the decision to expand into private equity real estate in 1991 and grow the credit platform in 2008 are great examples of its foresight. Moreover, since then, it has pushed into private wealth management and infrastructure.
Bloomberg According to the company, the famous Blackstone Real Estate Income Trust ("BREIT") has generated a cumulative return of 10% net in its largest share class since early 2022, significantly outperforming the public REIT market. BREIT has a massive size benefit, as it is three times larger than the next five largest nontraded REITs combined. More recently, the company has started to push into artificial intelligence, data centers, and renewable energy - three (somewhat related) areas that all require substantial capital and come with favorable long-term tailwinds.
Even better, not even the current environment of elevated rates seems to be able to slow the company, as it deployed $34 billion (+74%) in the second quarter - the highest number in two years. It has put almost $90 billion to work over the past three quarters. Blackstone Essentially, the company is betting on more favorable economic developments, including further moderating inflation and Federal Reserve rate cuts, both of which are very bullish for the giant.
Currently, the market sees a 60% probability of three rate cuts this year, with two cuts being almost a done deal (according to the market). Bloomberg With regard to its investments, the company's portfolio includes $55 billion in data centers, with an additional $70 billion in pipeline developments. Its largest data center portfolio company, QTS, has expanded its lease capacity sevenfold since being taken private in 2021.
Room For Growth And Elevated Shareholder Returns During the most recent earnings call, Jon Grey elaborated on the real estate situation, as Blackstone has been one of the first companies to make the case for a bottom in the real estate market. Hence, in the first six months of this year, the firm has deployed roughly $15 billion in this area - 2.5x its investment volume in the first six months of 2023.
Positive signs include a six-month trend of stable or increasing private real estate values and increased competition for single asset sales, which drives price improvements. Moreover, the availability of debt capital has significantly increased while the cost of capital has declined. When these two factors are combined with a steep decline in new construction starts, it bodes well for long-term value growth as the demand/supply balance shifts in favor of higher prices.
Adding to that, the company's private wealth business is experiencing accelerated growth, raising $7.5 billion in the second quarter. In fact, the company raised more than $6 billion in "perpetual vehicles" and almost $13 billion in the first half of 2024.
This already beats the total amount raised from individuals in all of 2023! Important players include BCRED (private credit fund), which raised $3.4 billion, the highest in two years, and BXPE (private equity strategies), which raised $1.6 billion.
It raised $4.3 billion in its first six months of this year. Blackstone According to the company, BREIT showed encouraging signs, which raised $900 million in the second quarter.
This is the best quarter in more than a year. BREIT also fulfilled 100% of repurchase requests since February, with a decline in total requests. This shows that confidence in the company's real estate operations is coming back.
Last year, BREIT had to limit withdrawals . Moreover, credit is a fascinating area. Blackstone sees a strong environment, supported by higher demand for investment-grade and non-investment-grade strategies and elevated interest rates.
I added emphasis to the quote below: Our performance has been outstanding with minimal defaults of less than 40 basis points over the last 12 months in our noninvestment-grade portfolio . Our scale allows us to focus on larger investments, where competitive dynamics are more favorable and where the quality of borrowers and sponsors is higher. In our nearly $120 billion global direct lending business, our emphasis on senior secured positions with average loan-to-values of 44% provides significant equity cushion subordinated to our loans.
- BX 2Q24 Earnings Call The company is so powerful that it is the sole or lead lender in roughly 80% of its U.S. portfolio! This comes with incredible advantages - especially compared to its borrowers.
Meanwhile, the insurance AUM grew 21% year-over-year to $211 billion, driven by strong client interest in Blackstone's asset-light, "open architecture" model. In infrastructure, the company is now the largest infrastructure investor in the world, with BIP (Blackstone Infrastructure Partners) seeing a 21% growth rate in fundraising. This is now a business worth more than $50 billion, with major projects in digital and energy infrastructure.
This includes a $1 billion solar and wind project alongside NextEra ( NEE ), America's largest renewable energy utility. It has north of $180 billion in dry powder, most of it in private equity. This can be deployed wherever the company sees opportunities - a luxury many competitors do not have.
Blackstone All things considered, in the second quarter, the company had $1.1 billion in fee-related earnings ($0.91 per share), $809 billion in fee-earnings AUM (+11%), and $1.
3 billion in distributable earnings ($0.96 per share). That's a 3% year-over-year increase.
Blackstone It maintains a balance sheet with an A+ rating and close to $9 billion in cash. With regard to its dividend, the company currently pays $0.82 per share per quarter.
This is 85% of its distributable per-share distributable income, which is the company's payout target. Our intention to pay to holders of common stock a quarterly dividend representing approximately 85% of Blackstone Inc.’s share of Distributable Earnings [.
..].
- BX 2023 10-K As a result, currently yielding 2.4%, the company does not have consistent dividend growth, as its dividend is highly dependent on distributable earnings. Data by YCharts However, that's no problem, as the company's growth outlook is very rosy, which also supports its valuation.
Valuation Blackstone is not cheap. Currently trading at a blended P/E ratio of 32.4x, it trades a mile above its 20-year average P/E multiple of 16.
1x. However, the five-year average is 22.5x, which fits the company's growth profile well.
Moreover, using the FactSet data in the chart below, this year, analysts expect 15% EPS growth, potentially followed by 30% and 15% growth in 2025 and 2026, respectively. FAST Graphs So, even a steep drop in its multiple could pave the way for a price target of $153, 10% above its current price. Including its dividend (assuming no hikes), the stock could return 7-9% annually.
I expect these numbers to become even more favorable if the Fed achieves a soft landing. This would confirm the company's expectations and create one of the most favorable environments for private equity since at least the Great Financial Crisis. The downside is a higher-for-longer scenario, which would hurt the economy and real estate values.
Although BX has enough dry powder to use that to its advantage as well, it would likely cause some selling on the stock market. While I won't invest in BX because I like to pick my own investments instead of letting an asset manager do it for me, I believe it's a near-unbeatable investment - just like playing Monopoly against someone with most of the properties. Takeaway Blackstone is a dominant player in the private equity world, much like owning all the key properties in a game of Monopoly.
With $1.1 trillion in assets under management, the company excels in a wide range of segments, including real estate, private wealth, infrastructure, and now, AI and renewable energy. The company's impressive performance, including a 570% return over the past decade, shows its strategic capabilities and ability to thrive even in challenging economic environments.
Although I prefer selecting my own investments, Blackstone's impressive growth, earnings outlook, and strategic positioning make it an investment powerhouse that will likely continue to outperform the market. Pros & Cons Pros: Stellar Performance : Blackstone has crushed the S&P 500 with a 570% return over the past decade, which perfectly shows how well BX has exploited market opportunities. Diverse Portfolio : From real estate and private equity to AI and renewable energy, Blackstone's diversified investments position it well for future growth.
Strong Leadership : With industry titans like Steven Schwarzman and Jon Gray, the company has some of the best managers in the business. Robust Dividend : While the dividend is not consistent, the current 2.4% yield and favorable growth outlook make for a compelling income investment.
Economic Resilience : Even in a high-rate environment, Blackstone continues to deploy significant capital, which shows its ability to use headwinds to its advantage. Cons: High Valuation : Trading at a blended P/E ratio of 32.4x, Blackstone isn't cheap, which could limit upside potential if growth slows.
Dividend Variability : The dividend depends on distributable earnings, so it might not be the best choice for those seeking consistent income. Market Sensitivity : A higher-for-longer interest rate scenario could hurt the economy and real estate values. Complexity : Blackstone's massive and diversified operations might be overwhelming for investors, as BX has become a highly complex corporation.
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And this offer includes a 2-Week FREE TRIAL plus Brad Thomas' FREE book . Leo Nelissen is an analyst focusing on major economic developments related to supply chains, infrastructure, and commodities. He is a contributing author for iREIT® on Alpha .
As a member of the iREIT® on Alpha team, Leo aims to provide insightful analysis and actionable investment ideas, with a particular emphasis on dividend growth opportunities. Learn More . Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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