A Strong Market, Rate Hike Expectations Bode Well For T. Rowe Price

Argus maintained its Buy rating and raised its target price by $5 to $88 on T. Rowe Price Group Inc TROW, saying the asset management firm should benefit from strong equities and further rate hikes.

“We expect renewed strength in equities to result in higher beginning AUM in 2017, and believe that further interest rate hikes will enable the company to eliminate money market fee waivers next year,” Stephen Biggar wrote in a note.

Biggar projects average assets to rise 1 percent in 2016, and now sees 3 percent growth in 2017 (up from 2 percent), on strong equity markets.

Biggar is also impressed with strong performance of T. Rowe’s actively managed funds, and its focus on the growing retirement market. The company also has high operating margins and a strong financial position, with no debt.

The analyst expects long-term assets under management (AUM) growth to be driven by target-date funds, and the launch of new products. For context, target-date instruments accounted for $189 billion, or 26 percent, of AUM at September 30.

Biggar reaffirmed his 2016 EPS estimate of $4.38, but raised his 2017 estimate to $5.01 from $4.94.

The target price of $88 assumes an above-peer-average multiple of 17.6-times 2017 EPS estimate.

“We believe this premium is warranted given the company’s underlying performance metrics and improving industry conditions,” Biggar added.

At last check, shares of T. Rowe were marginally up  0.03 percent to $76.11.