Blackstone Rises On Record Profits, Analysts Optimistic

Blackstone (BX) reported a better-than-expected first quarter on Thursday, logging its most profitable quarter ever.

The private equity firm said it earned $814 million, or 70 cents a share, up from 55 cents a share in the year-earlier period and well ahead of the consensus estimate of 57 cents.

Revenue rose 19.9% to $1.51 billion, also above the $1.3 billion analysts were expecting.

Distributable earnings rose 24% year over year in the first quarter, as total assets under management climbed 25%, thanks to double-digit increases across all of its investing businesses. Fee revenues for its real estate business were up 18%, while its hedge fund securities unit saw revenues increase 16%.

Analysts were largely upbeat about the quarter. Citigroup's William Katz reiterated a Buy rating and $40 price target on the stock, writing that the market continues to undervalue the sustainability and diversity of the firm's growing assets under management: "It is clear BX is firing across capital raising and dry powder deployment while benefiting from an acceleration in the realization cycle. Moreover, BX's strategic positioning continues to strengthen and BCP V is approaching a carry position which should drive a step function in ENI and DE and thus distributions, in our view."

Sandler O'Neill's Michael Kim and James Howley reiterated a Buy rating on the stock and $37 price target, writing that realizations remain robust, fund raising has never been stronger, and the firm is increasingly leveraging its global scale: "At a high level, we think today's news further validate momentum continues to build across the franchise. Put another way, activity levels remain high across fundraising, deal flow, and realizations setting the stage for concurrent growth in AUM (up 25% year-over-year) and distributable earnings. In turn, we look for ongoing realization activity to power a ramp up in distributable earnings (and therefore distributions to unitholders) in the near term and beyond, thereby driving a superior growth/yield profile for the stock –not fully reflected at current levels, we believe."

Morningstar's Stephen Ellis noted that he planned to increase his $33 fair value estimate about 10% to reflect the better-than-expected performance: "While all of Blackstone's segments performed well, we're particularly impressed with private equity. Because of a 400%-plus increase in incentive income to $287 million, overall economic net income jumped over 200% to $319 million. During the quarter, the carrying value of the segment's holdings leapt 7%, outpacing the market, and BCP V appreciated almost 6%. The BCP V main fund now only needs a 3% increase in total enterprise value before it can meet its hurdle rate and recognize accelerated incentive fees under the 80/20 catch-up period. We expect the fund to start recognizing these accelerated fees in 2014. We're also pleased to see the close of the Tactical Opportunities fund at $5.6 billion, which was larger than our original expectations, indicating continued healthy demand for Blackstone's services."

Fellow financial names Goldman Sachs (GS) and Morgan Stanley (MS) also reported on Thursday, while Citigroup (C) delivered a beat earlier in the week.