Though benefits from a stabilizing economy and gradually-improving interest-rate scenario had positioned the investment-management industry well, investment managers might be affected further by the Fed’s recent rate cuts, along with lower expectations for GDP growth and inflation despite a solid labor market. Further, margin compression as well as escalating compliance and technology costs might dent their profits in the near term.
Nevertheless, most investment managers have waived off majority of their fees with the rates rising since 2016. This decline in fee waivers has aided companies’ top-line growth. Moreover, most asset managers recorded solid revenue growth in the first nine months of 2019, backed by increase in assets under management (AUM).
Performance of equity markets remained favorable in the recently-reported quarter as reflected by the nearly 1.7% quarterly growth of the S&P 500 Index which resulted in a higher AUM.
Therefore, we are focusing on two investment managers — T. Rowe Price Group, Inc. TROW and Ameriprise Financial, Inc. AMP.
T. Rowe Price, with a market cap of $28.4 billion, is a publicly-owned investment manager offering services to its clients, and investing in public equity and fixed income markets globally. Ameriprise operates as a provider of various financial products and services to individual and institutional clients in the United States and globally, and has a market cap of $21 billion.
Both Ameriprise and T. Rowe Price currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though both asset managers have similar business trends, deeper research into the financials will help decide which investment option is better.
Both asset managers have outperformed the industry (down 3.6%) in the past six months. While shares of T. Rowe Price have gained 16.5%, Ameriprise’s stock climbed 8.5%. Thus, T. Rowe Price performed better than Ameriprise.
Both companies have been deploying capital in terms of dividend payments to enhance shareholder value. T. Rowe Price has a current dividend yield of 2.5%, while Ameriprise has a dividend yield of 2.42%.
As compared with the industry’s average of 2.45%, shareholders of T. Rowe Price gain more.
Ameriprise has a debt-to-equity ratio of 0.8 as compared with the industry average of 0.25. Therefore, T. Rowe Price, with a ratio of 0.02, has an edge over Ameriprise.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for T. Rowe Price and Ameriprise is 28.84% and 37.5%, respectively. While both stocks scored above the industry’s level of 12.28%, Ameriprise reinvests its earnings more efficiently.
Earnings Estimate Revisions & Growth Projections
The Zacks Consensus Estimate for 2019 earnings of Ameriprise moved up 1.6%, while the same for T. Rowe Price moved 1% north for the current year, over the last 30 days.
Moreover, T. Rowe Price’s ongoing year’s earnings are projected to jump 8.1% year over year. For Ameriprise, the Zacks Consensus Estimate is pinned at $16.25 for 2019, suggesting a year-over-year increase of 8.8%.
Hence, Ameriprise reflects better earnings growth prospects.
Sales for Ameriprise for the ongoing year are projected to be down 6.1% year over year to $12.1 billion. For T. Rowe Price, the Zacks Consensus Estimate is pegged at $5.6 billion for 2019, reflecting year-over-year growth of 4.1%.
Therefore, Ameriprise has an edge here as well.
Our comparative analysis shows that T. Rowe Price is better positioned than Ameriprise when considering leverage ratio, price performance and dividend yield. Ameriprise wins on earnings and sales growth expectations, and reinvesting potential.
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