BlackRock BLK) and Goldman Sachs GS) delivered record Q2 results this week, maintaining the strong momentum that has fueled financial stocks.
Robust capital markets activity and healthy client inflows helped both companies comfortably exceed expectations and post quarterly records for revenue and adjusted EPS, respectively.
BlackRock continues to dominate the global asset management market with record assets under management (AUM), while Goldman Sachs benefited from a resurgence in investment banking and trading activity.
For investors deciding between the two financial leaders, the question becomes whether the stability of BlackRock or the cyclical growth potential of Goldman Sachs offers the better opportunity going forward.
Record AUM Fuels BlackRock’s Strong Q2 Results
BlackRock produced another outstanding quarter, highlighted by its AUM surpassing $15 trillion for the first time in company history after attracting $192 billion of net client inflows during Q2.
Revenue climbed more than 30% year over year to $7.08 billion and comfortably exceeded Q2 estimates of $6.82 billion.
On the bottom line, BlackRock posted Q2 adjusted net income of $2.29 billion or $13.91 per share, which increased 15% from a year ago and topped EPS expectations of $12.67 by nearly 10%. Notably, the firm’s operating margin expanded to roughly 46%, its highest level in nearly five years.
Perhaps more importantly, management remained highly optimistic about its long-term outlook, highlighting continued expansion across ETFs, private markets, and technology services.
BlackRock also increased its quarterly share repurchases to $550 million and raised its full-year share repurchase target to roughly $2 billion. Although BlackRock doesn’t offer specific financial guidance, the company reaffirmed expectations for continued double-digit earnings growth.
Goldman Had The More Explosive Earnings Report
Pivoting to Goldman Sachs, Q2 revenue surged 39% YoY to $20.33 billion and blasted estimates of $16.49 billion by 23%.
More impressive, Goldman reported Q2 adjusted net income of $6.63 billion, translating to EPS of $20.98, which nearly doubled from a year ago and crushed expectations of $14.47 per share by 45%.
Furthermore, Goldman highlighted that its annualized return on equity (ROE) reached an impressive 23.5%.
The biggest driver was Global Banking & Markets, where revenue soared 53% thanks to exceptionally strong investment banking activity, equity underwriting, debt underwriting, and trading results. It’s noteworthy that Goldman’s investment banking fees increased 55% as capital markets remained highly active.
Like BlackRock, Goldman doesn’t provide traditional earnings guidance, although management struck an optimistic tone regarding client engagement, deal pipelines, and capital markets activity, suggesting favorable conditions may continue into the second half of the year.
Performance & Valuation Comparison (P/E)
While both stocks have rewarded long-term shareholders, Goldman Sachs has generated substantially stronger returns in recent years.
In the last three years, Goldman Sachs’ stock has soared over 230%, impressively outperforming the benchmark S&P 500’s 75% return. On the other hand, BlackRock shares are up a very respectable 50% but have trailed the broader market.
Despite an extensive rally, Goldman’s 19X forward earnings multiple still offers a slight discount to BlackRock’s 20X. Still, both stocks offer a pleasant discount to the benchmark’s 23X.
That said, BlackRock is roughly on par with its decade-long forward P/E median, while Goldman Sachs is noticeably above its 10-year average of 14X.
BlackRock’s Dividend Levels the Playing Field
Despite Goldman’s more attractive stock performance and valuation, income investors may prefer BlackRock.
BlackRock has maintained the higher dividend yield throughout most of the last year, reflecting its shareholder-friendly capital allocation strategy and highly predictable cash flow generated from recurring management fees.
Goldman Sachs has steadily increased its dividend over time as well, but its stronger share price appreciation has compressed the yield. While Goldman’s 1.56% annual dividend yield still tops the S&P 500’s average, BlackRock’s sits at a more attractive 2.1%.
Conclusion & Strategic Thoughts
Choosing between these financial leaders largely depends on an investor’s objectives.
For investors prioritizing dependable long-term compounding, recurring revenue, and a higher dividend yield, BlackRock remains one of the highest-quality financial companies in the market.
However, investors seeking stronger earnings momentum and a more attractive growth-to-valuation profile may find Goldman Sachs to be the more compelling opportunity following its outstanding Q2 results.
For now, Goldman Sachs’ stock sports a Zacks Rank #2 (Buy) with BlackRock landing a Zacks Rank #3 (Hold).
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