T. Rowe Price (TROW) Q4 Earnings: What's in the Cards?

We expect T. Rowe Price Group, Inc.TROW to beat earnings expectations when it reports fourth-quarter 2016 results, before the opening bell on Jan 26.

Why a Likely Positive Surprise?

Our proven model shows that T. Rowe Price is likely to beat on earnings in the fourth quarter. This is because the company has the combination of two key ingredients for a possible earnings beat - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +2.16%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of T. Rowe Price's Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.

The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Further, the company boasts an impressive earnings surprise history as depicted in the chart below:

T. Rowe Price Group, Inc. Price and EPS Surprise

T. Rowe Price Group, Inc. Price and EPS Surprise | T. Rowe Price Group, Inc. Quote

Shares of T. Rowe Price gained 12.3% over the past one year, underperforming the Zacks categorized Investment Management industry's gain of 22.7%.

Factors to Influence Q4 Results

According to Morningstar data, T. Rowe Price witnessed around $3.9 billion of net outflows in U.S. mutual fund products in fourth-quarter 2016.

However, the company is likely to record a rise in under management (AUM) as the fourth quarter experienced strong performance of equity markets. Notably, S&P 500 Index gained 3.8% in the quarter, which is likely to benefit T. Rowe Price, given its equity-heavy asset mix.

The current low interest-rate environment, however, continues to impact the company's fee income growth. Notably, in order to maintain a positive yield for fund investors, the company continues to waive fees in its money market mutual funds and trusts, with the same trend expected to reflect in the fourth-quarter results. Though the Fed has recently hiked interest rate, the favorable impact is not likely to occur in the to-be-reported quarter.

T. Rowe Price's efforts to improve its operating efficiency has resulted in year-over-year growth in the top line over the past few years. We believe that the company is well poised to sustain the uptrend, going forward, on the back of solid inflow and growing fixed income. Moreover, penetration into the advisory market will improve the company's growth prospects.

The company is making efforts to expand internationally as well. Though it is time consuming, the company is anticipated to revive long-term asset growth prospects.

T. Rowe Price's bottom line is plagued with challenges like escalating operating expenses. Further, the past few quarters witnessed rising expenses and we do not foresee this trend to reverse anytime soon.

The company did not point out anything related to its cost-control initiatives during the quarter, due to its several planned strategic initiatives. T. Rowe Price projects operating expenses for 2016 at growth rate of 6% (excluding the charge tied with Dell appraisal rights matter) and in the mid-to-high single-digit range for 2017. Notably, T. Rowe Price is anticipating capital expenditures in 2016 to be approximately $165 million for property and equipment additions, along with technology development.

Notably, this investment manager could not win analysts' confidence during the quarter. The Zacks Consensus Estimate remained unchanged at $1.39, over the last seven days.

Stocks that Warrant a Look

Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.

Raymond James Financial, Inc. RJF is scheduled to report fourth-quarter results on Jan 25.It has an Earnings ESP of +1.00% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

The Earnings ESP for Waddell & Reed Financial, Inc. WDR is +14.63% and it carries a Zacks Rank #3. The company is scheduled to release fourth-quarter results on Jan 31.

UMB Financial Corporation UMBF has an Earnings ESP of +1.18% and a Zacks Rank #1. It is slated to report fourth-quarter results on Jan 25.

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T. Rowe Price Group, Inc. (TROW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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