It has been about a month since the last earnings report for T. Rowe Price (TROW). Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is T. Rowe due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
T. Rowe Price Q2 Earnings Beat, Revenues Up
T. Rowe Price has reported second-quarter 2020 adjusted earnings per share of $2.29, which outpaced the Zacks Consensus Estimate of $2.04. The reported figure also climbed 12.8%, year on year.
Results were driven by higher revenues backed by an upsurge in investment advisory fees. Also, AUM improved. However, escalating expenses were an undermining factor.
Including certain non-recurring items, net income was $603 million or $2.55 per share compared with the $527.5 million or $2.15 per share recorded in the prior-year quarter.
Revenues Improve, Expenses Flare Up
Net revenues in the second quarter inched up 1.4% to $1.42 billion from the year-ago quarter. The upswing primarily resulted from higher investment advisory fees, partly offset by lower administrative, distribution and servicing fees. The net revenue figure is in line with the Zacks Consensus Estimate.
Investment advisory fees climbed 1.9% year over year. However, administrative, distribution and servicing fees dipped 2.7% year over year to $121.6 million.
Investment advisory revenues earned from T. Rowe Price mutual funds distributed in the United States were down 4.4% year over year to $823.1 million. Investment advisory revenues earned from other investment portfolios managed by the company increased 10.9% from the prior-year quarter to $511.6 million.
Total adjusted operating expenses flared up 2.8% year over year to $785.8 million in the reported quarter. Rise in headcount and continued investments mainly resulted in this upswing. Including certain one-time items, expenses came in at $861.7 million, up 10.5%.
As of Jun 30, 2020, T. Rowe Price employed 7,527 associates, around 2.2% higher than the prior year.
Assets Grow, Liquidity Position Strong
As of Jun 30, 2020, total AUM grew 8.4% year over year to $1.22 trillion. During the June-end quarter, net market appreciation and gains were $196.7 billion, while net cash inflow was $14.7 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of $5.7 billion as of Jun 30, 2020, which enable the company to keep on investing.
During the reported quarter, T. Rowe Price repurchased 1.3 million shares of its common stock for $141.8 million.
For 2020, the company projects capital expenditure of $225 million, comprising more than three-fourth for technology development.
The company revised expected non-GAAP operating expense growth to 3-6% from 1-4%, on increase in AUM-related expenses.
T. Rowe Price estimates effective tax rate for the full-year 2020 on a non-GAAP basis to be in the range of 23% to 25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, T. Rowe has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise T. Rowe has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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T. Rowe Price Group, Inc. (TROW): Free Stock Analysis Report
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