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T. Rowe (TROW) Down 4.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Qualcomm (QCOM) closed at $72.55 in the latest trading session, marking a -0.83% move from the prior day.

A month has gone by since the last earnings report for T. Rowe Price (TROW). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is T. Rowe due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

T. Rowe Price Q1 Earnings Beat Estimates, Revenues Down

T. Rowe Price recorded a positive earnings surprise of 14.7% in first-quarter 2019. Adjusted earnings per share came in at $1.87, outpacing the Zacks Consensus Estimate of $1.63. Results also improved 7.5% from the year-ago figure of $1.74.

Results were driven by higher AUM. However, escalating expenses and lower revenues were a concern.

Including certain non-recurring items, net income came in at $512.6 million or $2.09 per share compared with $453.7 million or $1.77 per share recorded in the prior-year quarter.

Revenues Decline Y/Y, Expenses Flare Up

Net revenues in the first quarter declined slightly to $1.33 billion from the year-ago quarter. The fall primarily resulted from lower administrative, distribution and servicing fees, mostly offset by higher investment advisory fees. However, the net revenue figure surpassed the Zacks Consensus Estimate of $1.28 billion.

Investment advisory fees inched up 0.4% year over year. However, administrative, distribution and servicing fees declined 4.1% year over year to $133.1 million.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the United States, were down 2% year over year to $815.9 million. Investment advisory revenues earned from other investment portfolios, managed by the company, increased 6.2% from the prior-year quarter to $378.3 million.

Total adjusted operating expenses flared up 2.1% year over year to $756.6 million in the first quarter. Rise in almost all components of expenses resulted in this upsurge. Including certain one-time items, expenses were $794.8 million, up 6.8%.

As of Mar 31, 2019, T. Rowe Price employed 7,102 associates, around 2.4% higher than the last year.

Strong Assets Position

As of Mar 31, 2019, total AUM climbed 6.7% year over year to $1.08 trillion. During the January-March quarter, net market appreciation and income, came in at $114 billion, while net cash inflow was $5.4 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $4.9 billion as of Mar 31, 2019, which enable the company to keep on investing.

Capital-Deployment Activity

During first-quarter 2019, T. Rowe Price repurchased 2.5 million shares of its common stock for $229.8 million, and invested $47.7 million in capitalized technology and facilities using available cash balances.

For 2019, the company projects capital expenditures to be approximately $200 million, comprising two-third for technology development.

Outlook

Management currently expects 2019 non-GAAP operating expenses to grow in the range of 4-7%, driven by continued investments in the business, cost-optimization efforts and the phased implementation of paying for all third-party investment research. All third-party investment research costs are likely to be fully accounted for in 2020 operating expenses.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, T. Rowe has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise T. Rowe has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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