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Will Decline in AUM Hurt T. Rowe Price's (TROW) Q3 Earnings?

Zacks Equity Research
·3-min read

T. Rowe Price Group, Inc. TROW is anticipated to report third-quarter 2021 results, before the bell on Oct 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 assets under management (AUM) and investment advisory fees. However, rising expenses were an undermining factor.

The company has an impressive surprise history. T. Rowe Price outpaced earnings estimates in all of the trailing four quarters, the average earnings surprise being 3.71%.

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

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The company’s activities during the quarter were inadequate to gain analysts’ confidence. As such, the Zacks Consensus Estimate of $3.31 for third-quarter earnings has remained unchanged over the past 30 days. Nonetheless, it indicates a rise of 29.8% from the year-ago reported figure. Also, the Zacks Consensus Estimate of $1.97 billion for revenues suggests a 23.5% increase from the prior-year quarter.

Factors at Play

Overall Outflows Likely: T. Rowe Price reported preliminary month-end assets under management of $1.61 trillion as of Sep 30, 2021. It is likely to have witnessed net outflows on a combined basis, having recorded modest inflows in fixed income products, partly offset by outflows in equities during the to-be-reported quarter. Due to relatively low volatility and market normalization, the company’s results will likely reflect a decrease in AUM on overall outflows and modest client activities.

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 sustained this encouraging uptrend in the third quarter as well.

This comes on the back of the 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 bank incurs significant expenditures to attract new investment advisory clients and additional investments from the existing clients.

Notably, management projects 2021 non-GAAP operating expenses to be up 12-15%. Also, it estimates capital expenditures for 2021 to be about $265 million. Therefore, the quarterly results might reflect the impact of such projections. Such uptrend in expenses is likely to keep affecting bottom-line expansion.

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 the stock is -0.55%.

Zacks Rank: T. Rowe Price currently carries a Zacks Rank of 3.

Stocks That Warrant a Look

Capital One Financial Corporation COF is slated to report quarterly earnings on Oct 26. The company, holding a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +4.66%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Civista Bancshares, Inc. CIVB is scheduled to release third-quarter results on Oct 27. The company currently carries a Zacks Rank #2 and has an Earnings ESP of +5.32%.

The Earnings ESP for First Interstate BancSystem, Inc. FIBK is +4.46%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Oct 26.


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Capital One Financial Corporation (COF) : Free Stock Analysis Report

T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report

First Interstate BancSystem, Inc. (FIBK) : Free Stock Analysis Report

Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report

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