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Can T. Rowe Price's (TROW) Robust Performance Continue in 2021?

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Shares of T. Rowe Price (TROW - Free Report) have rallied 22.8%, year to date, outperforming the industry’s rally of 16.4%. This marks a significant turnaround from the dismal first-quarter performance, wherein the stock lost 19.8% due to the coronavirus scare.

Robust fundamentals, driven by steady revenue growth, low debt level and strong capital-deployment activities seem to have led to this impressive stock performance. Further, mixed economic data post the coronavirus mayhem might act as a catalyst. After intensified sell-off in March on account of the outbreak, strong rebound in equity markets and rise in client activity also acted as tailwinds, as reflected by the 15.5% rally of the S&P 500 Index, which might result in higher assets under management (AUM) further.

Though most of the U.S. economic data were dismal, some better-than-expected interpretations in the later part of the year bolstered investor sentiment. Further, optimism surrounding the coronavirus vaccine, new coronavirus stimulus package and indications of a Brexit trade deal between the U.K. and the European Union have been favorable.

The Zacks Rank #2 (Buy) stock has been witnessing upward earnings estimate revisions. Over the past 30 days, the Zacks Consensus Estimate for the same moved up 4.8% to $10.49 for 2021.



While it might not witness a similar share-price performance in the future, we believe the following factors are enough to support steady price appreciation.

Revenue Growth: Net revenues of T. Rowe Price witnessed a five-year compound annual growth rate of 7.5% (2015-2019), with the trend continuing in the first nine months of 2020. Furthermore, the company remains focused on fortifying its business.

Through its planned initiatives, T. Rowe Price aims to launch investment strategies and vehicles, enhance client engagement capabilities, strengthen distribution channel in various geographic locations, improve its technology platform and derive long-term cost efficiencies. Such efforts are likely to boost revenues. The Zacks Consensus Estimate for the company’s revenues suggests year-over-year growth of 11.4% for 2021.

Earnings Strength: T. Rowe Price’s earnings witnessed a rise of 17.2% in the past three-five years compared with the industry’s growth of 6.6%. The momentum is anticipated to continue in the near term as well. The Zacks Consensus Estimate for the company’s earnings suggests year-over-year growth of 14.6% for 2021.

Also, its long-term (three-five years) expected earnings growth rate of 8.44% promises rewards for shareholders.

Strong Capital Deployment: This February, T. Rowe Price hiked its quarterly common stock dividend by 18.4%. This marked the company’s 34th consecutive annual dividend increase. Further, its board of directors increased the common share-repurchase authorization by 10 million shares, bringing the total authorization to about 22.4 million shares. Such efforts reflect its consistency in enhancing shareholder value.

Superior Return on Equity (ROE): T. Rowe Price’s ROE is 30.52% compared with the industry’s 11.3%. This highlights the competitive edge that the company holds over its peers.

Favorable VGM Score: T. Rowe Price has a VGM Score of B. Our research shows stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

Strong Leverage: T. Rowe Price’s debt/equity ratio is 0.00 compared with the industry’s 0.14. This reflects that the bank will be financially stable, even during adverse economic situations.

Other Stocks to Consider

Invesco Ltd. (IVZ - Free Report) has witnessed upward earnings estimate revisions for 2021 over the past 60 days. Moreover, this Zacks #1 Ranked stock has gained 69% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Federated Hermes, Inc. (FHI - Free Report) next-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have surged 23.4% over the past six months. At present, it flaunts a Zacks Rank of 1.

BlackRock, Inc. (BLK - Free Report) has witnessed recorded upward earnings estimate revision for the next year in the past 60 days. This Zacks #2 Ranked stock has appreciated 30.2% over the past six months.

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