Why Blackstone Rallied Today

Key Points

• Blackstone delivered another solid revenue and earnings beat.

• The private equity giant rode a market recovery and steady inflows to achieve an AUM over $1.2 trillion.

• It's possible the Trump administration may open retirement accounts to private equity, which could add another boost.

• 10 stocks we like better than Blackstone ›

Shares of alternative investment giant Blackstone (NYSE: BX) rallied 4.5% today as of 2:06 p.m. ET.

Blackstone reported second-quarter earnings today that came in well ahead of analyst estimates, as the world's largest private equity firm continues to be the gold standard in the alternative investment world. And a potential new opportunity to raise capital from retirement accounts is adding to the optimism.

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Blackstone continues to roll on

In the second quarter, Blackstone's revenue grew 33% to $3.71 billion, while EPS grew a whopping 69% to $0.98, beating expectations.

Of course, the markets recovered strongly during the second quarter, which boosted realizations and accrued performance revenues. Meanwhile, Blackstone continued to rake in more assets under management, with inflows totaling a whopping $52.1 billion, roughly consistent with prior three quarters.

Total AUM grew to a stunning $1.21 trillion -- with a "T" -- up 12.4% relative to a year ago. Meanwhile, a significant portion of that AUM at around 15% is still in "dry powder," which isn't earning fees yet and can be redeployed opportunistically.

Image source: Getty Images.

President Trump wants to open 401(k) accounts to PE

Blackstone shares rallied even over and above a recent rally spurred on by news reports that the Trump administration may issue an executive order that will allow private equity investments within 401(k)s and other retirement accounts.

That could be a boon to private equity firms like Blackstone, although the PE giants will also have to be careful about the opportunity.

On the conference call with analysts, current CEO Jonathan Gray said:

I think we all need to be patient here. But as we've talked about in the past, we think this is compelling for individual investors today in the defined contributions world. The access to alternatives, both the returns and diversification benefits, So we would expect this is going to happen at some point over time... it's obviously more appropriate for somebody earlier in their, sort of lifespan as opposed to somebody just on the cusp of retirement. And so I think the target date funds where we'll see this initially take hold. Obviously, it's a very large market. And for us specifically, the fact that we have created scale perpetual products that have track records that can absorb large amounts of capital that is a real competitive advantage.

While it appears all systems are a go for Blackstone, both in terms of recent investment performance and the prospect of more steady inflows and new sources of capital, much optimism is priced into the stock already, at 36.7 times this year's earnings estimates. Therefore, shares look like a hold for now, but perhaps not a buy until another market correction.

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Billy Duberstein and/or his clients have positions in Blackstone. The Motley Fool has positions in and recommends Blackstone. The Motley Fool has a disclosure policy.