It has been about a month since the last earnings report for T. Rowe Price Group, Inc. (TROW - Free Report) . Shares have added about 9.5 % in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is TROW 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's Q4 Earnings Beat Estimates, Costs Up
T. Rowe Price delivered a positive earnings surprise of 4.8% for fourth-quarter 2017. Adjusted earnings per share of $1.52 outpaced the Zacks Consensus Estimate of $1.45. Further, the bottom line improved 25.6% from the year-ago figure of $1.21.
Fourth-quarter results reflect higher revenues and AUM. Also, the company’s strong balance sheet position along with ample liquidity was the tailwinds. However, escalating expenses posed a concern.
After considering certain non-recurring items and impact of tax reform, net income for the quarter came in at $347.1 million or $1.37 per share compared with $379.8 million or $1.50 per share recorded in the prior-year quarter.
For full-year 2017, the company reported net income of $1.50 billion or $5.97 per share that compares favorably with $1.22 billion or $4.75 per share in the prior-year quarter. However, results lagged the Zacks Consensus Estimate of $6.06.
Revenues Increase, Expenses Up
For 2017, net revenues were up 13.5% year over year to $4.79 billion. The top line also outpaced the Zacks Consensus Estimate of $4.78 billion.
Net revenues of $1.29 billion topped the Zacks Consensus Estimate of $1.27 billion. Also, it rose 17.9% from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that increased 19.7% year over year to $1.16 billion.
Distribution and servicing fees rose 7% to $38 million. In addition, administrative fees improved 3.6% to $92.1 million on a year-over-year basis.
Investment advisory revenues generated from the T. Rowe Price mutual funds, distributed in the United States, were up 16.7% year over year to $817.9 million. Investment advisory revenues generated from other investment portfolios, managed by the company, rose 27.1% from the prior-year quarter to $338.1 million.
Total adjusted operating expenses were up 19.4% year over year to $747.7 million in the quarter. Including certain one-time items associated with the Dell appraisal rights matter, expenses were $755.1 million, up 43%.
As of Dec 31, 2017, T. Rowe Price employed 6,881 associates, 9% higher than last year.
Strong Assets Position
As of Dec 31, 2017, total AUM climbed 22.2% year over year to $991.1 billion. During the quarter, net market appreciation and income came in at $40.8 billion, while net cash inflow was $3.7 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and investment in its products of about $4.1 billion as of Dec 31, 2017, which enable the company to keep on investing.
Capital Deployment Activity
During the fourth quarter, T. Rowe Price repurchased 15,000 shares of its common stock for $1.4 million. For 2017, it repurchased 6.6 million shares for $458.1 million.
The firm invested $186.1 million during 2017 in capitalized technology and facilities using available cash balances, and projects capital expenditures to be approximately $180 million, comprising two-thirds for technology development.
T. Rowe price projects operating expenses to decrease in 2018 versus 2017.
The company currently estimates effective tax rate for 2018 in the band of 24-27%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.
At this time, TROW has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, TROW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.