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Organic Growth Aids T. Rowe Price (TROW) Despite High Costs
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T. Rowe Price Group, Inc. (TROW - Free Report) remains focused on fortifying its business by enhancing investment capabilities, broadening distribution reach and deepening client partnerships to support long-term growth. However, elevated operating expenses are likely to impede bottom-line growth for the company.
TROW's efforts to strengthen distribution channels in the United States, EMEA and the Asia Pacific, and improve technology platforms will drive organic growth. Notably, net revenues saw a five-year (ended 2021) compound annual growth rate (CAGR) of 12.1%.
In December 2021, T. Rowe Price completed the acquisition of OHA, thereby bulking up its offerings in the alternative investment market space. The mix shift toward international growth funds is also expected to help increase revenues and investment management margin of the company. Such strategic moves will enable it to sustain positive earnings throughout a critical period.
T. Rowe Price remains debt-free with substantial liquidity, including total cash and investments of $4.26 billion as of Dec 31, 2021. This aided in strengthening the company’s capital leverage.
Supported by decent liquidity, its capital deployment plans seem sustainable. In February 2022, the firm’s board of directors declared a quarterly dividend of $1.20 per share, indicating an 11.1% sequential hike, suggesting T. Rowe Price’s 36th consecutive annual dividend increase.
In the third quarter of 2021, the firm paid out a special cash dividend of $3 per share. Also, in February 2020, its board of directors increased the common share repurchase authorization by 10 million shares, bringing the total authorization to 22.4 million shares. Such efforts reflect the company’s commitment to returning value to shareholders with its strong cash generation capabilities.
However, expenses escalated at a four-year (2018-2021) CAGR of 9.6%. Moreover, TROW incurs significant expenditure to attract investment advisory clients and additional investments from existing clients. Such an uptrend in expenses is likely to keep affecting bottom-line expansion.
Investment advisory fees are the biggest source of revenues for T. Rowe Price. The increased dependence on these could affect the company's financials in the near term, as changes in assets under management due to market fluctuations and foreign exchange translations, regulatory changes, or a sudden slowdown in overall business activities could hurt this revenue source.
Market-share losses due to the high adoption of passive investments via index funds and exchange traded funds are other concerns. The increasing preference for passive investing has affected the company's new client inflows. Although T. Rowe Price is making efforts to diversify its product mix across other asset classes and geographies, concentration in U.S. equities still poses a major risk that could lead to inconsistent asset flows.
Over the past six months, shares of T. Rowe Price have lost 29.2%, comparing unfavorably with the industry’s decline of 13.9%.
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) and Bank of Hawaii (BOH - Free Report) . At present, FBIZ sports a Zacks Rank #1, whereas Bank of Hawaii carries a Zacks Rank #2 (Buy).
Over the past six months, shares of FBIZ have jumped 14.7%, whereas the BOH stock has rallied 5.2%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised marginally upward, while the same for Bank of Hawaii has been unchanged.
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Organic Growth Aids T. Rowe Price (TROW) Despite High Costs
T. Rowe Price Group, Inc. (TROW - Free Report) remains focused on fortifying its business by enhancing investment capabilities, broadening distribution reach and deepening client partnerships to support long-term growth. However, elevated operating expenses are likely to impede bottom-line growth for the company.
TROW's efforts to strengthen distribution channels in the United States, EMEA and the Asia Pacific, and improve technology platforms will drive organic growth. Notably, net revenues saw a five-year (ended 2021) compound annual growth rate (CAGR) of 12.1%.
In December 2021, T. Rowe Price completed the acquisition of OHA, thereby bulking up its offerings in the alternative investment market space. The mix shift toward international growth funds is also expected to help increase revenues and investment management margin of the company. Such strategic moves will enable it to sustain positive earnings throughout a critical period.
T. Rowe Price remains debt-free with substantial liquidity, including total cash and investments of $4.26 billion as of Dec 31, 2021. This aided in strengthening the company’s capital leverage.
Supported by decent liquidity, its capital deployment plans seem sustainable. In February 2022, the firm’s board of directors declared a quarterly dividend of $1.20 per share, indicating an 11.1% sequential hike, suggesting T. Rowe Price’s 36th consecutive annual dividend increase.
In the third quarter of 2021, the firm paid out a special cash dividend of $3 per share. Also, in February 2020, its board of directors increased the common share repurchase authorization by 10 million shares, bringing the total authorization to 22.4 million shares. Such efforts reflect the company’s commitment to returning value to shareholders with its strong cash generation capabilities.
However, expenses escalated at a four-year (2018-2021) CAGR of 9.6%. Moreover, TROW incurs significant expenditure to attract investment advisory clients and additional investments from existing clients. Such an uptrend in expenses is likely to keep affecting bottom-line expansion.
Investment advisory fees are the biggest source of revenues for T. Rowe Price. The increased dependence on these could affect the company's financials in the near term, as changes in assets under management due to market fluctuations and foreign exchange translations, regulatory changes, or a sudden slowdown in overall business activities could hurt this revenue source.
Market-share losses due to the high adoption of passive investments via index funds and exchange traded funds are other concerns. The increasing preference for passive investing has affected the company's new client inflows. Although T. Rowe Price is making efforts to diversify its product mix across other asset classes and geographies, concentration in U.S. equities still poses a major risk that could lead to inconsistent asset flows.
Over the past six months, shares of T. Rowe Price have lost 29.2%, comparing unfavorably with the industry’s decline of 13.9%.
Image Source: Zacks Investment Research
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Finance Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) and Bank of Hawaii (BOH - Free Report) . At present, FBIZ sports a Zacks Rank #1, whereas Bank of Hawaii carries a Zacks Rank #2 (Buy).
Over the past six months, shares of FBIZ have jumped 14.7%, whereas the BOH stock has rallied 5.2%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised marginally upward, while the same for Bank of Hawaii has been unchanged.