Shares of T. Rowe Price Group, Inc. (TROW - Free Report) surged 32% in 2019, outperforming the industry’s rally of 12.7%. This marks a significant turnaround from a dismal 2018 performance, wherein the stock had lost 12.1%.
Robust fundamentals, driven by steady revenue growth, low debt level, strong capital deployment activities and gradually improving operating environment, seem to have led to this impressive stock performance. Further, positive developments on major issues like U.S.-China trade war and Brexit might act as catalysts.
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 marginally upward to $7.87 for 2019 and 2.2% north for 2020.
While it might not witness similar share price performance in the future, we believe that the following factors are adequate to support steady price appreciation.
Revenue Growth: Given steady improvement in assets under management balance, net revenues (GAAP basis) of T. Rowe Price witnessed a five-year compound annual growth rate of 7.8% (2014-2018), with the trend continuing in the first nine months of 2019. Furthermore, the company remains focused on fortifying business.
Through its planned initiatives T. Rowe Price aims to launch new 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 5.5% for 2020.
Earnings Strength: T. Rowe Price’s earnings witnessed 13.3% rise in the past three-five years compared with the industry’s 4.8% growth. 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 8.3% for 2019 and 4.6% for 2020.
Also, its long-term (three-five years) expected earnings growth rate of 9% promises rewards for shareholders.
Strong Capital Deployment: In February 2019, T. Rowe Price hiked its quarterly common stock dividend by 8.6% to 76 cents per share. This marked the company’s 33rd 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 shareholders’ value.
Superior Return on Equity (ROE): T. Rowe Price’s ROE is 28.84% compared with the industry’s 12.34%. This highlights the company’s commendable position 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 0.02 compared with the industry’s 0.27. This reflects that the company will be financially stable, even during adverse economic situations.
Other Stocks to Consider
Invesco Ltd.’s (IVZ - Free Report) 2019 earnings estimates have moved marginally north in a month’s time. Moreover, this Zacks #2 Ranked stock has rallied 1.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Federated Investors, Inc.’s earnings estimates for 2019 have moved slightly upward in the past 30 days. Further, the company’s shares have gained 25% over the trailing 12-month period. At present, it holds a Zacks Rank of 2.
BlackRock, Inc. (BLK - Free Report) has witnessed marginal upward earnings estimate revision for 2019 in the past 30 days. Additionally, the stock has gained 28.2% in the past year. It currently carries a Zacks Rank #2.
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