Morningstar Equity Analysts have issued a cautious stance on Blackstone Inc. (BX), highlighting that the current stock price of $177.11 exceeds its fair value estimate of $155.00. While the company continues to display solid performance with growing assets under management (AUM) and enhanced earnings, analysts suggest that the stock is overvalued, carrying a Price/Fair Value (P/FVE) ratio of 1.14. Investors are advised to consider the high uncertainty in valuation, driven by market volatility, capital allocation strategies, and regulatory factors.

Blackstone's Strong Performance Metrics

Total Assets Under Management (AUM):
Blackstone reported $1.127 trillion in AUM by December 2024, representing an 8.4% year-over-year increase. Within this, fee-earning AUM stood at $830.7 billion, rising 1.2% sequentially.

Fundraising and Deployments:
During the fourth quarter, Blackstone raised $57.5 billion, well above its average of $38.2 billion over the past eight quarters. The firm deployed $41.6 billion in new investments, signaling robust activity and strong investor interest.

Revenue Growth:
Total quarterly revenue surged to $3.1 billion, compared to $1.3 billion in the same period last year. Much of this increase stemmed from higher incentive fees and investment income.

Fair Value Estimate and Price Levels

Morningstar's revised fair value of $155 for Blackstone suggests a moderate correction from its current price of $177.11 may be due. This valuation reflects projected earnings growth, AUM expansion, and capital deployment efficiency over the next five years. Analysts have further outlined scenario-based price targets:

Bull-Case Target: $240 per share
Base-Case Target: $155 per share
Bear-Case Target: $93 per share
The stock is likely to trade around its fair value of $155 if market conditions stabilize, rate cuts materialize in 2025, and investor sentiment improves.

Blackstone’s Economic Moat and Competitive Edge

Morningstar rates Blackstone's economic moat as narrow, despite the firm's scale across private equity, real estate, credit, and insurance. Blackstone’s ability to retain clients through lock-in investment periods and switching costs contributes to this rating. However, intensifying competition from traditional asset managers such as BlackRock and KKR could pressure fee-based revenues.

The firm holds a strong competitive advantage due to its long-standing reputation, diversified product offerings, and expertise in managing alternative assets. Blackstone accounted for 12% of new commitments in the alternative investment industry from 2019 to 2023, surpassing its key rivals.

Key Risks and Uncertainty Factors

Morningstar assigns a high uncertainty rating to Blackstone’s valuation, citing several risk factors:

1. Market Volatility:
Economic downturns and fluctuations in the equity and credit markets could hinder Blackstone’s ability to raise capital and realize profits on investments.

2. Regulatory Risks:
Changes in tax laws and regulations across global markets may impact the firm’s earnings potential and asset valuations.

3. Illiquidity in Investments:
Blackstone’s reliance on private equity and real estate exposes it to liquidity constraints, particularly during tight credit cycles.

Capital Allocation and Leadership

Chair and CEO Stephen Schwarzman, co-founder of Blackstone, has been instrumental in guiding the firm through various market cycles. Under his leadership, Blackstone has maintained a sound balance sheet, with $2.4 billion in cash, $9.3 billion in investments, and $10.7 billion in long-term debt as of September 2024.

The firm's capital allocation strategy includes a mix of perpetual capital funds and finite-lived investments, enabling flexibility in both asset growth and returns to shareholders. Blackstone has returned nearly $34 billion in dividends over the past decade.