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T. Rowe Price or Ameriprise: Which Stock is a Better Pick?

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Though benefits from a stabilizing economy and gradually improving interest-rate scenario had positioned the investment-management industry well, investment managers might be affected by the Fed’s dovish stance, hinting at no rate hikes this year, along with lower expectations for GDP growth and inflation despite a solid labor market. Further, margin compression as well as escalating compliance and technology costs will likely hurt investment managers’ profits in the near term.

Nevertheless, most investment managers have waived off majority of their fees with the rates rising since 2016. This decline in fee waivers has aided companies’ top-line growth. Moreover, most asset managers recorded revenue growth in first-quarter 2019, backed by increase in assets under management (AUM).

Performance of equity markets remained favorable in the recently-reported quarter as reflected by the nearly 13.1% quarterly growth of the S&P 500 Index, expected to result in a higher AUM.

Therefore, we are focusing on two investment managers — T. Rowe Price Group, Inc. (TROW - Free Report) and Ameriprise Financial, Inc. (AMP - Free Report) .

T. Rowe Price, with a market cap of $24.6 billion, is a publicly-owned investment manager providing services to its clients, and investing in public equity and fixed income markets globally. Ameriprise operates as a provider of various financial products and services to individual and institutional clients in the United States and globally, and has a market cap of $19.5 billion.

Ameriprise currently carries a Zacks Rank #2 (Buy), with a Value Score of B, while T. Rowe Price sports a Zacks Rank #1 (Strong Buy), with a Value Score of C. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Though both asset managers have similar business trends, deeper research into the financials will help decide which investment option is better.

Price Performance

Both asset managers have outperformed the industry (up 4.1%) in the past six months. While shares of T. Rowe Price have gained 11.7%, Ameriprise’s stock climbed 20.1%. So, Ameriprise performed better than T. Rowe Price.



Dividend Yield

Both companies have been deploying capital in terms of dividend payments to enhance shareholder value. T. Rowe Price has a current dividend yield of 2.88%, while Ameriprise has a dividend yield of 2.62%.

As compared with the industry’s average of 2.92%, shareholders of T. Rowe Price gain more.



Leverage Ratio

Ameriprise has a debt-to-equity ratio of 0.88 as compared with the industry average of 0.43. Therefore, T. Rowe Price, with a ratio of 0.03, has an edge over Ameriprise.

Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-months for T. Rowe Price and Ameriprise is 28.93% and 37.97%, respectively. While both stocks scored above the industry’s level of 13.40%, Ameriprise reinvests its earnings more efficiently.



Earnings Estimate Revisions & Growth Projections

The Zacks Consensus Estimate for 2019 earnings of Ameriprise increased about 2.9%, while the same for T. Rowe Price moved around 9% north for the current year, over the last 30 days.

Moreover, T. Rowe Price’s ongoing year’s earnings are projected to jump 3.4% year over year. For Ameriprise, the Zacks Consensus Estimate is pinned at $15.9 for 2019, reflecting a year-over-year increase of 6.4%.

Hence, Ameriprise reflects better earnings growth prospects.

Sales Growth

Sales for Ameriprise for the ongoing year are projected to be down 4.1% year over year to $12.3 billion. For T. Rowe Price, the Zacks Consensus Estimate is pegged at $5.6 billion for 2019, reflecting year-over-year growth of 3.7%.

Therefore, T. Rowe Price has an edge here.

Conclusion

Our comparative analysis shows that T. Rowe Price is better positioned than Ameriprise when considering leverage ratio, sales growth expectations and dividend yield. Ameriprise wins on price performance, earnings growth expectations, reinvesting potential and valuation.

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T. Rowe Price Group, Inc. (TROW) - free report >>

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