Blackstone Stock Turns Red after Earnings; What Now?
Stock Analysis & Ideas

Blackstone Stock Turns Red after Earnings; What Now?

Blackstone (BX), a leader in private equity operations, recently made a push into student housing. That move seemed to have been welcomed with open arms by its investors. The company pushed up 4% in premarket trading today with its earnings report’s arrival, though those gains were shed with the morning’s trading session. The stock is now down over 5%.

I’m mildly bullish on Blackstone. This latest effort is just another in a slate of options that Blackstone can present. While there are some potential systemic weaknesses for real estate coming, Blackstone is taking up this position in addition to its others. That makes it less a bet-the-company strategy and more a branching-out, which is helpful.

The last year for Blackstone started out on a mostly upward trend, but it quickly got more volatile the farther up it went. April to September 2021 was mainly up, followed by a series of dips, recoveries, and further dips. Today, the company is about 43% higher than it was this time last year, which is generally a positive development.

The latest news will help buoy investors’ spirits. Blackstone’s earnings report revealed the company brought in $1.94 billion in distributable earnings, around $1.55 per share. Analysts, meanwhile, were projecting just $1.06 per share. However, current Blackstone president Jonathan Gray noted that deal activity would likely be lower this year than last.

Wall Street’s Take

Turning to Wall Street, Blackstone has a Moderate Buy consensus rating. That’s based on eight Buys and five Holds assigned in the past three months. The average Blackstone price target of $149.91 implies 32.5% upside potential.

Analyst price targets range from a low of $117 per share to a high of $186 per share.

Investor Support for Blackstone is Declining

As far as investor support for Blackstone goes, it’s a good news / bad news setup. The bad news is that there’s a lot of bear support behind Blackstone right now. The good news is that there is, in fact, some good news to be had at all.

The good news for Blackstone support comes from retail investors, who have been stepping up their positions in Blackstone for some time now. Portfolios holding Blackstone are up 3.6% in the last 30 days and up 0.4% in the last seven days.

Additionally, Blackstone’s dividend history offers support in its own right. The company has been paying a dividend since 2008, though the amount has fluctuated with a surprising regularity all its own.

The dividend had dropped in both quarters following February 2021, but in July 2021, a turnaround began. From then until the last quarter, the dividend was on the rise, reaching $1.45 per share. However, the most recent dividend, which was announced today, comes at $1.32 per share. Nonetheless, this is still almost two times more than the $0.70 paid out in July 2021.

However, there’s quite a bit of bad news. The TipRanks 13-F Tracker reveals that hedge fund support for Blackstone has been in continuous decline since June of 2020.

As for insider trading, that too is a very close picture. Buyers led sellers 23 to 19 over the last year, but in the last three months, insiders sold an average of $3.5 million in shares. That suggests that selling is starting to ramp up a bit in the near term.

Will Diversification be Enough?

In general, I’m in favor of diversification within certain limits. While it seldom makes sense for, say, Coca-Cola (KO) to branch out into heavy equipment manufacturing, branching out into alcohol, snacks, or even apparel can work.

Complementary goods are generally good diversification measures. They help protect against economic breakdowns by improving the odds that some part of the business will stay profitable.

Certainly, Blackstone has done a fine job of diversification while staying in its own lane. Blackstone’s recent push into student housing through its purchase of American Campus Communities (ACC) makes sense. Blackstone manages assets. Real estate is an asset. So why wouldn’t this be a reasonable step?

It’s an issue of macroeconomics that gives me some misgivings about this deal. Right now, there’s a shortage of student housing. That makes buying one of the biggest names in student housing a good plan.

However, the housing market, in general, is starting to weaken thanks to rising interest rates as well as rising inflation chewing away at disposable income. This is just a start, of course, but like thunderstorm clouds over the starting line of a marathon, it’s not the best start.

Here’s the problem, though; this assumes that student housing will stay a problem long enough for Blackstone to make a profit therein. What happens when students stop seeking housing because they can no longer afford it, let alone school in general?

Then, they instead decide to learn plumbing or welding or the like at trade schools near their parents’ houses. That means the entire narrative falls apart for Blackstone, and it’s got a bunch of campus housing near rapidly-emptying campuses.

Concluding Views

Still, I remain mildly bullish. Blackstone is currently trading close to its lows, which is a good sign. It improves the chance of upward movement and reduces the chance of further losses. Its dividend is impressive if somewhat fragile; it doubled in six months, so what’s to stop it from halving in another few months?

The investor support picture is a bit strained; the loss of hedge fund support is worrying, as is the mixed-bag that is insider support. However, since a lot of Blackstone’s focus is in real estate of one kind or another, that’s a fairly solid basis on which to base a company.

Will Rogers once famously remarked: “Buy land. They ain’t making any more of the stuff.” Blackstone, meanwhile, has quite a bit, and that’s enough to leave me at least mildly bullish.

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