On Sep 9, 2013, we reiterated our long-term recommendation on
T. Rowe Price Group, Inc.
) at Neutral based on the company's debt-free position, higher
return on earnings and improving investor sentiment. However,
higher operating expenses and stringent regulatory norms could be
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T. Rowe Price reported its second-quarter 2013 net income of 92
cents per share, missing the Zacks Consensus Estimate by a
sliver. However, this significantly outperformed the year-ago
earnings of 79 cents. Results improved on a year-over-year basis,
driven by top-line growth, a strong capital position and improved
T. Rowe Price remains debt free with substantial liquidity that
includes cash and mutual fund investment holdings of about $2.7
billion. This has assisted in strengthening the company's capital
leverage and generating a return on earnings that is
substantially higher than the industry average.
The company is an attractive asset for yield-seeking investors
due to its strong capital deployment activity. In Feb 2013, T.
Rowe Price's board of directors approved a 12.0% hike in the
company's quarterly common stock dividend. The revised quarterly
dividend now stands at 38 cents per share. This marks T. Rowe's
27th consecutive annual dividend increase, reflecting the
company's commitment to return value to shareholders with its
strong cash generation capabilities.
However, elevated operating expenses remain a major concern for
T. Rowe Price. Total operating expenses jumped 9.4% year over
year in first-half 2013, driven by higher compensation and
related expenses. Moreover, the company incurs significant
expenditures to attract new investment advisory clients and
additional investments from existing clients. These efforts
involve costs that generally precede future revenues, thereby
affecting the overall profitability of the company.
For T. Rowe Price, the Zacks Consensus Estimate for 2013 and 2014
has remained stable at $3.74 and $4.11 per share, respectively,
over the last 7 days. Hence, the company carries a Zacks Rank #3
Other Major Companies to Consider
Some investment managers that are worth considering include
Affiliated Managers Group Inc.
Noah Holdings Limited
Virtus Investment Partners Inc.
). All the companies carry a Zacks Rank #2 (Buy).