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T. Rowe Price (TROW) Up 4.9% Since Earnings Report: Can It Continue?
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About a month has gone by since the last earnings report for T. Rowe Price Group, Inc. (TROW - Free Report) . Shares have added about 4.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
T. Rowe Price's Q3 Earnings Beat, Revenues In Line
T. Rowe Price reported a positive earnings surprise of 8.3% for third-quarter 2017. Earnings per share of $1.56 outpaced the Zacks Consensus Estimate by 12 cents. Further, the bottom line improved 33.3% from the year-ago figure of $1.17. Results include certain non-recurring items.
Third-quarter results were driven by higher revenues and AUM. However, escalating expenses posed a concern.
Including certain non-recurring items, net income came in at $390.9 million compared with $327.8 million recorded in the prior-year quarter.
Revenues Increase Y/Y, Expenses Up
Net revenues of $1.22 billion came almost in line with the Zacks Consensus Estimate. However, it rose 11.8% from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that increased 13% year over year to $1.10 billion.
Distribution and servicing fees rose 1.9% to $37.4 million. In addition, administrative fees improved 2.2% to $87.6 million on a year-over-year basis.
Investment advisory revenues generated from the T. Rowe Price mutual funds, distributed in the United States, were up 11.4% year over year to $783.9 million. Investment advisory revenues generated from other investment portfolios, managed by the company, rose 17.2% from the prior-year quarter to $312.8 million.
Total adjusted operating expenses were up 8.1% year over year to $665.7 million in the quarter. Including certain one-time items associated with the Dell appraisal rights matter, expenses were $673.2 million, up 9.1%.
As of Sep 30, 2017, T. Rowe Price employed 6,796 associates, 7% higher than last year.
Strong Assets Position
As of Sep 30, 2017, total AUM climbed 16.6% year over year to $947.9 billion. During the quarter, net market appreciation and income came in at $38.4 billion while net cash inflow was $5.9 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $4.1 billion as of Sep 30, 2017, which enable the company to keep on investing.
Capital Deployment Activity
During the third quarter, T. Rowe Price repurchased 0.1 million shares of its common stock for $9.7 million and invested $129.1 million during the first nine months of 2017 in capitalized technology and facilities using available cash balances.
For 2017, the company projects capital expenditures to be approximately $200 million, comprising two-third for technology development.
Outlook
T. Rowe price expects operating expenses to escalate about 11% in 2017 versus 2016. The company has increased the expectation from the previous guidance of about 10% due to certain expenses, such as variable compensation, which has increased as a result of stronger than anticipated market performance.
Notably, advertising and promotion costs for 2017 are anticipated to rise up to 10% over 2016 on execution of certain strategic initiatives.
The company currently estimates effective tax rate for 2017 to be 35.9%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, T. Rowe Price's stock has a subpar Growth Score of D. It lags a bit on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months
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T. Rowe Price (TROW) Up 4.9% Since Earnings Report: Can It Continue?
About a month has gone by since the last earnings report for T. Rowe Price Group, Inc. (TROW - Free Report) . Shares have added about 4.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
T. Rowe Price's Q3 Earnings Beat, Revenues In Line
T. Rowe Price reported a positive earnings surprise of 8.3% for third-quarter 2017. Earnings per share of $1.56 outpaced the Zacks Consensus Estimate by 12 cents. Further, the bottom line improved 33.3% from the year-ago figure of $1.17. Results include certain non-recurring items.
Third-quarter results were driven by higher revenues and AUM. However, escalating expenses posed a concern.
Including certain non-recurring items, net income came in at $390.9 million compared with $327.8 million recorded in the prior-year quarter.
Revenues Increase Y/Y, Expenses Up
Net revenues of $1.22 billion came almost in line with the Zacks Consensus Estimate. However, it rose 11.8% from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that increased 13% year over year to $1.10 billion.
Distribution and servicing fees rose 1.9% to $37.4 million. In addition, administrative fees improved 2.2% to $87.6 million on a year-over-year basis.
Investment advisory revenues generated from the T. Rowe Price mutual funds, distributed in the United States, were up 11.4% year over year to $783.9 million. Investment advisory revenues generated from other investment portfolios, managed by the company, rose 17.2% from the prior-year quarter to $312.8 million.
Total adjusted operating expenses were up 8.1% year over year to $665.7 million in the quarter. Including certain one-time items associated with the Dell appraisal rights matter, expenses were $673.2 million, up 9.1%.
As of Sep 30, 2017, T. Rowe Price employed 6,796 associates, 7% higher than last year.
Strong Assets Position
As of Sep 30, 2017, total AUM climbed 16.6% year over year to $947.9 billion. During the quarter, net market appreciation and income came in at $38.4 billion while net cash inflow was $5.9 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $4.1 billion as of Sep 30, 2017, which enable the company to keep on investing.
Capital Deployment Activity
During the third quarter, T. Rowe Price repurchased 0.1 million shares of its common stock for $9.7 million and invested $129.1 million during the first nine months of 2017 in capitalized technology and facilities using available cash balances.
For 2017, the company projects capital expenditures to be approximately $200 million, comprising two-third for technology development.
Outlook
T. Rowe price expects operating expenses to escalate about 11% in 2017 versus 2016. The company has increased the expectation from the previous guidance of about 10% due to certain expenses, such as variable compensation, which has increased as a result of stronger than anticipated market performance.
Notably, advertising and promotion costs for 2017 are anticipated to rise up to 10% over 2016 on execution of certain strategic initiatives.
The company currently estimates effective tax rate for 2017 to be 35.9%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
T. Rowe Price Group, Inc. Price and Consensus
T. Rowe Price Group, Inc. Price and Consensus | T. Rowe Price Group, Inc. Quote
VGM Scores
At this time, T. Rowe Price's stock has a subpar Growth Score of D. It lags a bit on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months