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Will Decline in AUM Hurt T. Rowe Price's (TROW) Q4 Earnings?

Zacks Equity Research

T. Rowe Price Group TROW is scheduled to report fourth-quarter 2018 results, before the opening bell on Jan 30. Its revenues and earnings projected to improve year over year.

In the last reported quarter, T. Rowe Price surpassed the Zacks Consensus Estimate, on the back of higher revenues and assets under management (AUM). However, escalating expenses was a negative factor.

Further, the company has a decent earnings surprise history. It delivered a positive earnings surprise in two of the trailing four quarters with an average beat of 5.3%.

T. Rowe Price Group, Inc. Price and EPS Surprise

T. Rowe Price Group, Inc. Price and EPS Surprise | T. Rowe Price Group, Inc. Quote


Notably, activities of the company in the fourth quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.68 has remained stable over the past seven days. Also, the figure indicates year-over-year rise of 10.5%.

Factors at Play

Revenue Growth Might be Muted: T. Rowe Price’s efforts to improve its operating efficiency have resulted in top-line growth over the past few years. We believe the company is well poised to sustain this uptrend in the near term.

However, AUM is likely to have declined this quarter as indicated by the company’s monthly reports will offset the top-line growth. Per the consensus estimate, total AUM is expected to decline 1.8% sequentially to $1.03 billion. Thus, given the decline in total AUM, performance fees and investment management fees are expected to have decreased.

Overall Outflows Expected: Significant volatility and corrections in equity markets resulted in substantial outflows during the fourth quarter. Thus, T. Rowe Price is expected to report outflows for the to-be-reported quarter.

Expenses to Escalate: The company incurs significant expenditures to attract new investment advisory clients and additional investments from existing clients. Further, T. Rowe Price expects operating expenses to flare up in the range of 8-11% in 2018. Notably, the company anticipates capital expenditures for the current year to be approximately $170 million, including 70% for technology development.

Earnings Whispers

According to our quantitative model, we cannot conclusively predict an earnings beat for T. Rowe in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: T. Rowe has an Earnings ESP of 0.00%.

Zacks Rank: The stock currently carries a Zacks Rank #3.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

BOK Financial Corporation BOKF is slated to report results on Jan 30. It has an Earnings ESP of +1.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Credit Acceptance Corporation CACC is also slated to release results on Jan 30. It has an Earnings ESP of +0.21% and carries a Zacks Rank #3.

Ares Capital Corporation ARCC has an Earnings ESP of +1.10% and carries a Zacks Rank of 3. The company is slated to release results on Feb 12.

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