T. Rowe (TROW) Up 4.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for T. Rowe Price (TROW). Shares have added about 4.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is T. Rowe due for a pullback? 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, Revenues Up

T. Rowe Price has reported first-quarter 2020 adjusted earnings per share of $1.87, which outpaced the Zacks Consensus Estimate of $1.85. The reported figure was in line with the year-ago quarter.

Results were driven by higher revenues on the back of an upsurge in investment advisory fees. However, escalating expenses were an undermining factor. Also, AUM declined year over year.

Including certain non-recurring items, net income was $343.1 million or $1.41 per share compared with the $512.6 million or $2.09 per share recorded in the prior-year quarter.

Revenues Improve, Expenses Flare Up

Net revenues in the first quarter increased 10.2% to $1.46 billion from the year-ago quarter. The upswing primarily resulted from higher investment advisory fees along with elevated administrative, distribution and servicing fees. The net revenue figure outpaced the Zacks Consensus Estimate of $1.42 billion.

Investment advisory fees climbed 11.2% year over year to $1.3 billion. Also, administrative, distribution and servicing fees escalated 1.3% year over year to $134.8 million.

Investment advisory revenues earned from T. Rowe Price mutual funds distributed in the United States were up 9.4% year over year to $876.2 million. Investment advisory revenues earned from other investment portfolios managed by the company increased 19.4% from the prior-year quarter to $451.6 million.

Total adjusted operating expenses flared up 8.1% year over year to $817.9 million in the reported quarter. Rise in headcount, continued investments, and elevated bonus and stock-based compensation expenses mainly resulted in the upsurge. Including certain one-time items, expenses were $755.4 million, down 5%.

As of Mar 31, 2020, T. Rowe Price employed 7,471 associates, around 1.4% higher than the last year.

Assets Decline, Liquidity Position Strong

As of Mar 31, 2020, total AUM declined 16.4% sequentially to $1.01 trillion. During the March-end quarter, net market depreciation and losses were $191.9 billion, while net cash outflow was $6 billion after client transfers. Moreover, AUM slumped 6.7% year over year.

T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $5 billion as of Mar 31, 2020, which enable the company to keep on investing.

Capital-Deployment Activity

During the reported quarter, T. Rowe Price repurchased 8.3 million shares of its common stock for $887 million at an average cost of $106.43.

For 2020, the company projects capital expenditure of $230 million, comprising three-fourth for technology development.

Outlook

T. Rowe Price projects full-year 2020 non-GAAP operating expense growth of 1-4%, down from 6-9%. This guidance reflects continued investments in the business and technology, cost optimization efforts and concluding part of the phased implementation of making payments to all third-party investment research at a moderate pace.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 6.96% due to these changes.

VGM Scores

Currently, T. Rowe has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, T. Rowe has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.