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Inside Wall Street


The Bright Luster of BlackRock

Shares of BlackRock (BLK), the largest publicly traded U.S. asset manager, have been jittery, reflecting the market's volatile mood. But when BlackRock reported better-than-expected second-quarter results, the stock pulled way ahead. It's now at 222.57, up from 178 on July 16. "It may well have risen to a level from which BlackRock could gain further upside momentum," says Michael Hecht of Banc of America Securities (BAC).

BlackRock's second-quarter net income climbed a hefty 23%, to $274 million, or $2.05 a share, and revenues rose 26%, to $1.39 billion from $1.1 billion, in part from higher investment advisory fees. BlackRock also disclosed that Merrill Lynch (MER), which owns 49% of the stock, agreed not to sell its stake. Had Merrill Lynch decided otherwise, BlackRock's stock might have crashed.

Hecht, who rates BlackRock a buy, says it is "the best stock in our coverage" and worth 225—based on the asset manager's "best-in-class products and broad mix of assets under management." Those assets have grown to $1.4 trillion from 2007's $1.3 trillion, with fixed income accounting for 41% and equities 35%. Hecht sees 2008 profits rising to $9.04 a share and in 2010 to $10.70, vs. 2007's $8.20.

Marc Irizarry of Goldman Sachs (GS) upgraded BlackRock to buy from neutral, noting that its fundamentals have improved further, with the inflow of funds accelerating.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Martha Cozies Up to Wal-Mart

Is Martha Stewart beginning a long friendship with Wal-Mart Stores (WMT)? On July 8, Martha Stewart Living Omnimedia (MSO) announced a pact with the discounter to sell craft products such as stationery supplies, jewelry-making kits, and wedding items like ring pillows. The buzz is that this will lead to a broader agreement, which analysts call a big plus for Omnimedia. Chairman Charles Koppelman says the deal will help replace the $1.5 billion in sales it got with its Kmart (SHLD) tie-in, which will expire in 2010.

"Our research suggests incremental yearly earnings before taxes and interest of at least $1.5 million," says Richard Ingrassia of Roth Capital Partners. He rates the stock, now at 7.49 a share, a buy, with a 12-month target of 18. David Kestenbaum of investment firm Morgan Joseph says the Wal-Mart link, small for now, "could lead to something bigger."

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

A Biotech's Overseas Pacts

Roche's Holding (RHHBY) bid to buy all of Genentech (DNA) has reignited investor interest in U.S. biotechs, especially those that are already partnered with foreign drugmakers. One such is Emisphere Technologies (EMIS), whose Eligen technology, which allows more drugs to be taken by mouth, is being tested by Switzerland's Novartis (NVS) for its drug for osteoporosis and osteoarthritis. In June, Denmark's Novo Nordisk (NVO), a major insulin producer, teamed up with Emisphere to develop an oral formulation of Novo's diabetes medicines. Novo will pay as much as $87 million for Emisphere's technology.

Stephen Brozak, president of WBB Securities, rates Emisphere, now at 2.89 a share, a buy, with a 12-month target of 7.50. "Emisphere's Eligen has the potential for wider applications," says Brozak. Also bullish: Amy Wang of MDB Capital, who has a 12-month target of 7.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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