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Inflows to Support T. Rowe Price's (TROW) Earnings in Q2

Zacks Equity Research

T. Rowe Price Group, Inc. TROW is scheduled to report second-quarter 2019 results, before the opening bell on Jul 24, with its revenues and earnings projected to increase year over year.

In the last reported quarter, T. Rowe Price outpaced the Zacks Consensus Estimate, driven by higher AUM. However, escalating expenses and lower revenues were a concern.

T. Rowe Price recorded positive earnings surprise in two out of the trailing four quarters, delivering an average beat of 3.9%.

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

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

T. Rowe Price Group, Inc. price-eps-surprise | T. Rowe Price Group, Inc. Quote

Further, activities of the company in the second quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.91 moved north marginally over the last seven days. The figure indicates a year-over-year rise of 7.9%.

The Zacks Consensus Estimate for sales of $1.4 billion for the quarter also reflects an increase of 4% from the year-ago quarter’s reported figure.

Let’s see how things have shaped up for this announcement.

The company has the combination of the two key ingredients for a possible earnings beat — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

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

Earnings ESP: The Earnings ESP for the stock is currently pegged at +0.33%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of T. Rowe Price’s Zacks Rank #1 and a positive ESP makes us confident of an earnings beat.

Factors to Influence Q2 Results

Overall Inflows Expected: According to the Morningstar data, T. Rowe Price witnessed around $3 billion of net inflows on a combined basis, being outflows in U.S. mutual fund products and net inflows excluding transfers to other portfolios in the second quarter.

Furthermore, the performance of equity markets was favorable in the quarter, with the S&P 500 Index increasing 4.3% sequentially. Therefore, the company’s results will likely reflect a rise in assets under management (AUM) on overall inflows.

Notably, the Zacks Consensus Estimate for AUM is pinned at $1.12 billion, up 3.7% sequentially, while net cash inflows are projected at $3.1 billion, down 42.6% sequentially.

Revenue Growth: T. Rowe Price’s efforts to improve its operating efficiency have resulted in year-over-year top-line growth, over the past few years. We believe the company is well poised to sustain this encouraging uptrend, in the near term. This comes on the back of several planned initiatives largely tied with launching investment strategies and vehicles, enhancing client-engagement capabilities in each distribution channel, strengthening distribution channel in the United States, EMEA, and the Asia Pacific, and improving its technology platform and deriving long-term cost efficiencies.

Expenses to Escalate: The company did not point out anything related to its cost-control initiatives during the June-end period. It incurs significant expenditures to attract new investment advisory clients and additional investments from existing clients. T. Rowe Price expects 4-7% expense rise this year. Notably, the company anticipates capital expenditures in the current year to be approximately $200 million, including two-third for technology development.

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.

Ares Capital Corporation ARCC is slated to release results on Jul 30. The company has an Earnings ESP of +1.02% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Franklin Resources, Inc. BEN is +0.13% and the stock also flaunts a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Jul 30.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.03% and holds a Zacks Rank of 3. It is set to report June quarter-end results on Jul 22.

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