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Growth & Income

One company that benefits directly from the rising stock market is asset manager T. Rowe Price Group, Inc. (TROW - Analyst Report).

The company delivered strong fourth quarter results and has seen its earnings estimates rise over the last few weeks, thanks in part to the strongest start to a year for the S&P in 14 years.

It is a Zacks #2 Rank (Buy).

In addition to strong growth, the company offers a dividend that yields a solid 2.1%.

Company Description

T.Rowe Price is a global investment management firm that provides mutual funds, subadvisory services for individuals, institutions, retirement plans, and financial intermediaries. It had Assets Under Management (AUM) of $489.5 billion at the end of 2011.

The company was founded in 1937 and is headquartered in Baltimore, Maryland.

Fourth Quarter Results

T. Rowe Price delivered better-than-expected results for the fourth quarter. Earnings per share came in at 73 cents, beating the Zacks Consensus Estimate by 4 cents. It was a penny above the same quarter in 2010.

Net revenues rose 4% to $671.6 million, ahead of the Zacks Consensus Estimate of $668.0 million. This was driven by a 5% increase in average AUM in the quarter. This increase in AUM came mostly from market appreciation, but there was a positive net cash inflow in the quarter too.

Meanwhile, operating expenses held steady at 56.3% of total revenue as operating income rose 4%.


Analysts revised their estimates higher for both 2012 and 2013 off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Estimates have been rising over the last few weeks too as the S&P is off to its strongest start since 1998.

The Zacks Consensus Estimate for 2012 is now $3.22, representing 10% EPS growth. The 2013 consensus estimate is currently $3.64, corresponding with 13% growth.

Returning Value to Shareholders

T. Rowe Price has no debt and solid cash flow, which has allowed it to return value to shareholders through stock buybacks and dividend hikes. During 2011, the company spent $479.7 million buying back 8.7 million shares of its common stock.

And since 2000, it has raised its dividend at a compound annual rate of 14%:

TROW: T. Rowe Price Group, Inc.

It currently yields a solid 2.1%.


Shares trade at 19.6x 12-month forward earnings, a premium to the industry median of 13.0x. But this is in-line with its 10-year median. Its price to tangible book ratio of 6.1 is a discount to its 10-year median of 7.4.

The Bottom Line

With a rising stock market, rising estimates, shareholder-friendly management and a 2.1% yield, T. Rowe Price offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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