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Weak Equity Markets to Hurt T. Rowe Price (TROW) Q1 Earnings

Zacks Equity Research

T. Rowe Price Group, Inc. TROW is scheduled to report first-quarter 2020 results, before the bell on Apr 28. The company’s revenues are projected to reflect a year-over-year increase, while earnings are likely to decline.

In the last reported quarter, T. Rowe Price’s earnings outpaced the Zacks Consensus Estimate on higher assets under management (AUM) and revenues. However, escalating expenses were a concern.

T. Rowe Price recorded positive earnings surprises in all of the trailing four quarters, the average beat being 8.17%.

Notably, the company’s activities in the first quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.85 remained unchanged, over the last seven days. The figure indicates a year-over-year decline of 1.07%.

The Zacks Consensus Estimate for first-quarter sales is pegged at $1.42 billion, suggesting an increase of 7.33% year over year.

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

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

The company doesn’t has the right 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 0.00%.

Zacks Rank: T. Rowe Price currently carries a Zacks Rank of 4, which decreases the predictive power of ESP.

Factors at Play

Overall Outflows Likely:
T. Rowe Price is likely to have witnessed net outflows on a combined basis, having recorded outflows in U.S. mutual fund products and other investment portfolios during the first quarter.

Furthermore, equity markets put up a dismal performance in the quarter, with the S&P 500 Index plunging 19.6% sequentially on the coronavirus scare. Therefore, the company’s results will likely reflect a fall in AUM on overall outflows and unfavorable market returns.

Hence, investment advisory fees might have been negatively impacted in the quarter. The consensus mark of $1.3 billion indicates a 5.9% sequential decline.

Nonetheless, administrative, service and distribution fees of $125 million suggest marginal sequential growth.

Notably, the Zacks Consensus Estimate for AUM is pinned at $1.22 billion, marginally up on a sequential basis, while net cash outflows are projected at $8.3 billion.

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 boosting its technology platform and deriving long-term cost efficiencies.

Rising Expenses: The company has not updated on anything related to its cost-control initiatives during the March-end period. It incurs significant expenditures to attract new investment advisory clients and additional investments from existing clients. T. Rowe Price expects a 6-9% expense rise for 2020. Notably, the company anticipates capital expenditures to be approximately $210 million, including two-third for technology development. Therefore, the quarterly results might reflect the impact of such projections as well.

Stocks that Warrant a Look

Here are a few 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.

Seacoast Banking Corporation of Florida SBCF is scheduled to release results on Apr 28. The company currently has an Earnings ESP of +9.38% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Boston Private Financial Holdings, Inc. BPFH is +1.54% and the stock carries a Zacks Rank of 3, currently. The company is set to announce quarterly numbers on Apr 29.

First BanCorp. FBP is slated to report earnings figures on Apr 30. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +8.51%.

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