Will T. Rowe Price (TROW) Beat Earnings Again This Season? - Analyst Blog

We expect T. Rowe Price Group, Inc. (TROW) to beat earnings expectations when it reports second-quarter 2014 results before the opening bell on Thursday, Jul 24.

Why a Likely Positive Surprise?

Our proven model shows that T. Rowe Price is likely to beat earnings because it has the right combination of two key components.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +0.90%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
 
Zacks Rank #2 (Buy): Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of T. Rowe Price's Zacks Rank #2 and ESP of +0.90% makes us confident of an earnings beat on Jul 24.   

Factors to Drive Q2 Results

Though the overall market remained volatile during the quarter, major U.S. equity indexes witnessed an uptick that favorably impacted the investment management industry. Thus, we believe T. Rowe Price has benefited from this favorable trend.

T. Rowe Price's efforts to improve operating efficiency resulted in year-over-year growth in the top line in the prior quarter. We expect the upcoming results to show a similar trend, given the company's strength in investment advisory, administrative and distribution.

Further, expected improvement in AUM should significantly support its results. Notably, T. Rowe Price recorded positive earnings surprises in 3 of the last 4 quarters with an average beat of 1.47%.

On the other hand, the company's inability to reduce expenses is a major concern. The past few quarters witnessed rising expenses. We do not expect this trend to reverse this time as well. Particularly, the company did not indicate anything related to its cost control initiatives during the quarter.   
Activities of T. Rowe Price during the second quarter of the year were adequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter increased around 1% to $1.12 per share over the last 7 days.

Stocks That Warrant a Look

T. Rowe Price is not the only firm looking up this earnings season. We also anticipate earnings beat from some other companies in this industry:

Hancock Holding Company (HBHC) has an earnings ESP of +1.70% and carries a Zacks Rank #3 (Hold). It is scheduled to report its second-quarter results on Jul 24.

Popular, Inc. (BPOP) has an earnings ESP of +10.29% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 24.

Affiliated Managers Group Inc. (AMG) has an earnings ESP of +1.16% and a Zacks Rank #2 (Buy). It is scheduled to report results on Jul 29.