Solid Equity Markets to Aid T. Rowe Price (TROW) Q4 Earnings

Zacks Equity Research
·5-min read

T. Rowe Price TROW is scheduled to report fourth-quarter 2020 results, before the bell on Jan 28. The company’s revenues and earnings are projected to reflect year-over-year increases.

In the last reported quarter, T. Rowe Price’s earnings outpaced the Zacks Consensus Estimate on higher revenues, backed by a rise in investment advisory fees. Also, assets under management (AUM) improved. However, escalating expenses were an undermining factor.

T. Rowe Price recorded earnings surprises in all of the trailing four quarters, the average beat being 4.56%.

Notably, the company’s activities in the fourth quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate of $2.68 for earnings moved upward over the last seven days. The figure indicates a year-over-year jump of 32%.

The Zacks Consensus Estimate for quarterly sales is pegged at $1.71 billion, suggesting an increase of 16.1% year on 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 and EPS Surprise

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

Key Factors

Overall Inflows Likely: T. Rowe Price is likely to have witnessed net inflows on a combined basis, having recorded inflows in fixed income products, partly offset by continued outflows in other investment portfolios during the to-be-reported quarter.

Furthermore, equity markets put up an encouraging performance during the quarter under review, with the S&P 500 Index rallying 11.7% sequentially. Therefore, the company’s results will likely reflect a rise in AUM on overall inflows and market returns. Hence, investment advisory fees are anticipated to have been positively impacted.

Investment management fees of $1.52 billion are likely to reflect a 3.4% rise, quarter on quarter. Also, Administrative, service and distribution fees of $129 million suggest a 1.6% sequential increase.

Notably, the Zacks Consensus Estimate for AUM is pinned at $1.38 billion, up 5.3% on a sequential basis, while net cash outflows are projected at $7.3 billion compared with the inflows of $2.8 billion recorded in the prior-year quarter.

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 bank is well poised to sustain this encouraging uptrend in the near term as well. This comes on the back of a number 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: T. Rowe Price has not updated on anything related to its cost-control initiatives during the October-December period. The bank incurs significant expenditures to attract new investment advisory clients and additional investments from existing clients. T. Rowe Price projects non-GAAP operating expense to flare up 4-6% for 2020 and 6-9% in 2021. Therefore, the quarterly results might reflect the impact of such projections.

Here is what our quantitative model predicts:

T. Rowe Price does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 T. Rowe Price is 0.00%.

Zacks Rank: T. Rowe Price currently carries a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Stocks Worth a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +4.5% and the stock sports a Zacks Rank of 1 (Strong Buy), at present. The company is slated to report fourth-quarter numbers on Jan 28.You can see the complete list of today’s Zacks #1 Rank stocks here.

PennyMac Financial Services, Inc. PFSI is likely to release earnings figures on Feb 4. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +13.07%.

The Carlyle Group L.P. CG is scheduled to announce quarterly results on Feb 4. The company has an Earnings ESP of +0.16% and currently holds a Zacks Rank of 3.

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