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Expansion Efforts Aid T. Rowe Price (TROW) Amid Rising Expenses
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T. Rowe Price Group's (TROW - Free Report) solid assets under management (AUM) balance and expansion moves are key strengths. Its decent liquidity position helps it sustain steady capital distributions. However, elevated operating expenses and increased dependence on investment advisory fees are likely to hurt the company’s financials.
What’s Aiding it?
Though the company's net revenues decreased in the first six months of 2023, it witnessed a compound annual growth rate (CAGR) of 2.2% over a three-year period (ended 2022). Going forward, the company’s focus on fortifying its business by enhancing investment capabilities and mix shift toward international growth funds will likely drive top-line growth.
T. Rowe Price has been able to sustain earnings throughout the global financial crisis, supported by its diverse business model. The company's AUM witnessed a CAGR of 5.2% over the past five years (2017-2022). The uptrend persisted in the first half of 2023. The company’s decent business volumes, strong brand and consistent investment track record are likely to keep supporting AUM growth in the upcoming period. Our model estimates AUM to witness at a CAGR of 3.6% by 2025.
TROW has successfully expanded its business operations through several opportunistic deals over the years. In April 2023, it acquired Retiree, a fintech firm. Further, T. Rowe Price expanded its footprint and capabilities through the acquisition of Oak Hill Advisors in 2021. With this acquisition, it bulked up its offerings in the alternative investment market space. We believe such endeavors will likely support its prospects in the long-term prospects.
TROW’s substantial liquidity, which included total cash and investments of $4.97 billion as of Jun 30, 2023, ensures steady capital distribution activities. The company has hiked quarterly dividends every year since its IPO in 1986, the most recent being a hike of 1.6% in February 2023. Also, in the first half of 2023, it repurchased 0.42 million shares for nearly $45 million. Such efforts reflect the company’s commitment to enhancing shareholder value.
What’s Hurting it?
Rising operating expenses are a major concern for the company. Expenses saw a two-year (2020-2022) CAGR of 9%. The rising trend continued in the first half of 2023.
As TROW continues to incur expenses to attract new investment advisory clients and make additional investments from existing clients, its ability to expand the bottom line might get hampered. We expect total operating expenses to witness a CAGR of 3.9% by 2025.
Investment advisory fees are the biggest revenue source for T. Rowe Price. The increased dependence on these can hurt the company's financials in the near term because of AUM changes, owing to market fluctuations and foreign exchange translation, regulatory changes or a sudden slowdown in business activities.
The majority of assets managed by T. Rowe Price are invested in U.S. equities, which seems to be another negative factor. Although T. Rowe Price is making efforts to adopt various strategies to diversify its product mix across other asset classes and geographies, concentration in U.S. equities is a major risk, which could lead to inconsistent asset flows.
Analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for TROW's current-year earnings has been revised marginally downward over the last seven days. The company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of TROW have declined 7.2% against the industry's rise of 7.2%.
Image Source: Zacks Investment Research
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Apollo Global Management (APO - Free Report) and Prospect Capital (PSEC - Free Report) .
The Zacks Consensus Estimate for Apollo Global’s current-year earnings has been revised marginally upward over the past 30 days. Its shares have gained 45.5% in the past six months. Currently, APO carries a Zacks Rank #2 (Buy).
Prospect Capital currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 6.2% upward over the past 60 days. In the past three months, PSEC shares have declined 6.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Expansion Efforts Aid T. Rowe Price (TROW) Amid Rising Expenses
T. Rowe Price Group's (TROW - Free Report) solid assets under management (AUM) balance and expansion moves are key strengths. Its decent liquidity position helps it sustain steady capital distributions. However, elevated operating expenses and increased dependence on investment advisory fees are likely to hurt the company’s financials.
What’s Aiding it?
Though the company's net revenues decreased in the first six months of 2023, it witnessed a compound annual growth rate (CAGR) of 2.2% over a three-year period (ended 2022). Going forward, the company’s focus on fortifying its business by enhancing investment capabilities and mix shift toward international growth funds will likely drive top-line growth.
T. Rowe Price has been able to sustain earnings throughout the global financial crisis, supported by its diverse business model. The company's AUM witnessed a CAGR of 5.2% over the past five years (2017-2022). The uptrend persisted in the first half of 2023. The company’s decent business volumes, strong brand and consistent investment track record are likely to keep supporting AUM growth in the upcoming period. Our model estimates AUM to witness at a CAGR of 3.6% by 2025.
TROW has successfully expanded its business operations through several opportunistic deals over the years. In April 2023, it acquired Retiree, a fintech firm. Further, T. Rowe Price expanded its footprint and capabilities through the acquisition of Oak Hill Advisors in 2021. With this acquisition, it bulked up its offerings in the alternative investment market space. We believe such endeavors will likely support its prospects in the long-term prospects.
TROW’s substantial liquidity, which included total cash and investments of $4.97 billion as of Jun 30, 2023, ensures steady capital distribution activities. The company has hiked quarterly dividends every year since its IPO in 1986, the most recent being a hike of 1.6% in February 2023. Also, in the first half of 2023, it repurchased 0.42 million shares for nearly $45 million. Such efforts reflect the company’s commitment to enhancing shareholder value.
What’s Hurting it?
Rising operating expenses are a major concern for the company. Expenses saw a two-year (2020-2022) CAGR of 9%. The rising trend continued in the first half of 2023.
As TROW continues to incur expenses to attract new investment advisory clients and make additional investments from existing clients, its ability to expand the bottom line might get hampered. We expect total operating expenses to witness a CAGR of 3.9% by 2025.
Investment advisory fees are the biggest revenue source for T. Rowe Price. The increased dependence on these can hurt the company's financials in the near term because of AUM changes, owing to market fluctuations and foreign exchange translation, regulatory changes or a sudden slowdown in business activities.
The majority of assets managed by T. Rowe Price are invested in U.S. equities, which seems to be another negative factor. Although T. Rowe Price is making efforts to adopt various strategies to diversify its product mix across other asset classes and geographies, concentration in U.S. equities is a major risk, which could lead to inconsistent asset flows.
Analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for TROW's current-year earnings has been revised marginally downward over the last seven days. The company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of TROW have declined 7.2% against the industry's rise of 7.2%.
Image Source: Zacks Investment Research
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Apollo Global Management (APO - Free Report) and Prospect Capital (PSEC - Free Report) .
The Zacks Consensus Estimate for Apollo Global’s current-year earnings has been revised marginally upward over the past 30 days. Its shares have gained 45.5% in the past six months. Currently, APO carries a Zacks Rank #2 (Buy).
Prospect Capital currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 6.2% upward over the past 60 days. In the past three months, PSEC shares have declined 6.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.