Blackstone (NYSE: BX) stock price rose for the six consecutive days, reaching a record high of $155. It has risen by over 26% this year and by over 250% in the last five years, giving it a market cap of over $184 billion.
Other private equity companies are also doing well. Brookfield Asset Management (BAM) soared to a record high of $45.35, up by more than 65% from the year-to-date low. Apollo Global (APO) jumped to $116.
Interest rate cut as a catalyst
Blackstone share rose sharply as traders anticipated the upcoming Federal Reserve interest rate cuts.
Economists expect the bank to start cutting interest rates by either 0.25% and 0.50% since the economy is slowing. Recent data showed that the headline Consumer Price Index (CPI) fell to 2.5%, its lowest level in over two years.
Another report showed that the unemployment rate has risen to 4.2%. As such, the Fed will cut rates to prevent further weakness in the economy and stimulate recovery.
Blackstone will benefit from a low interest rate environment in a few ways. First, lower rates will likely lead to more exits for its portfolio companies. In most cases, mergers and acquisitions (M&A) and Initial Public Offerings (IPO) do well when interest rates are conducive.
For example, there are media reports that Blackstone is considering selling its stake in VFS Global, a company that offers migration and visa services for governments.
Private equity exits will also do well if Donald Trump wins the next election. While some of his policies are not all that good, his fous on deregulation will likely lead to more transactions.
Second, many of its portfolio companies will do well in a low interest rate environment. A good example of this is its real estate business, which relies heavily on credit. Blackstone’s real estate business has over $336 billion in assets under management. It also has real estate worth over $603 billion.
Third, low rates will likely lead to more cash from investors with a need for alternative assets. In the past few years, these investors have packed their funds in government bonds, which have been paying over 5% annual returns. Money market funds have added over $6 trillion in assets in the past few months.
Additionally, Blackstone will likely use the low interest rate environment to deploy its dry powder. Its real estate business has almost $60 billion in dry powder while credit and insurance has $37.9 billion while the private equity has $79.4 billion.
Read more: Blackrock vs Blackstone: which is a better stock to buy?
Strong growth
The most recent financial results showed that Blackstone’s business was growing, helped by a surge in assets to over $1.07 trillion.
Its revenue came in at over $2.79 billion in the second quarter, a drop from the $2.8 billion it made in the same period. Its year-to-date revenue jumped to over $6.8 billion while the last twelve months revenue soared to over $10.3 billion.
Most of Blackstone’s revenue comes from management and advisory fees followed by performance allocations. Its net income for the quarter came in $1.2 billion.
Analysts believe that Blackstone has more room to grow in the coming years. For 2024, the consensus is that its revenue will rise to $11.84 billion followed by $14.7 billion in 2025. Its earnings per share is expected to grow to $4.54 and $5.93 in the two years.
Still, its biggest concern is that the company is relatively overvalued since it has a market cap of over $184 billion. This valuation means that it trades at a forward P/E ratio of 33 and a trailing multiple of 54. These numbers are higher than the sector median of 12.
Additionally, Blackstone trades at a price to book multiple of 15, higher than the sector median of 2.85. A price-to-book ratio of 16 means that its stock is 16 times higher than its book value per share, which is too rich. For example, Goldman Sachs, which also has a large asset management business with $2.6 trillion in assets, trades at a P/B ratio of 1.50.
Therefore, Blackstone will need to generate strong financial results to justify these valuation multiples.
Blackstone stock price analysis
BX chart by TradingView
The daily chart shows that the BX share price popped sharply on Monday. It has already moved above the key resistance point at $144.43, its highest point in July and its all-time high.
The stock has remained above the 50-day and 100-day moving averages, meaning that bulls are in control. Also, the MACD indicator and the Relative Strength Index (RSI) have drifted upwards, meaning that there is strong momentum.
Therefore, the stock will likely continue rising as bulls target the next key resistance point at $200 in the next few months.
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