T. Rowe Price Shows Stability in Fundamentals - Analyst Blog

On Mar 24, 2014, we issued an updated research report on T. Rowe Price Group Inc. TROW. This investment management company recently reported impressive fourth-quarter 2013 results. Results were aided by top-line growth, a strong capital position and improved assets under management (AUM), partially offset by higher operating expenses. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.

T. Rowe Price reported fourth-quarter 2013 earnings of $1.06 per share, beating the Zacks Consensus Estimate by 1.92%. Net income was up 24% year over year to $287.7 million. In the final quarter, net revenue increased 18% to $929.8 million from $787.3 million in the year-ago period.

The company exhibited a decent performance in 2013 as evident from its earnings history. In 2013, the company posted positive earnings surprises in 3 of the 4 quarters with an average beat of 1.30%.

Organic growth remains a key strength at T. Rowe Price, as reflected by its revenue growth story. Net revenues grew at a CAGR of 8.3% over the last three years (2011–2013). We believe the company is well positioned to maintain this trend going forward.

T. Rowe Price is an attractive asset for yield-seeking investors due to its strong capital deployment activity. In Feb 2014, T. Rowe Price's board of directors approved a 16.0% hike in the company's quarterly common stock dividend. The revised quarterly dividend now stands at 44 cents per share. This marks T. Rowe Price's 28th consecutive annual dividend increase, reflecting the company's commitment to return value to shareholders.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include elevated operating expenses and cyclical and secular pressures in the asset management business.

For 2014, the Zacks Consensus Estimate over the past 60 days inched up 1.1% to $4.43 per share. Also, for 2015 it increased 1.6% to $4.94 per share, over the same time frame.

T. Rowe Price currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better ranked investment management companies include AllianceBernstein Holding L.P. AB, Fortress Investment Group LLC FIG and Lazard Ltd. LAZ. All these 3 carry a Zacks Rank #1 (Strong Buy).