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Will Solid Equity Markets Aid T. Rowe Price (TROW) Q3 Earnings?

T. Rowe Price TROW is scheduled to report third-quarter 2020 results, before the bell on Oct 29. The company’s revenues and earnings are projected to reflect year-over-year increases.

In the last reported quarter, T. Rowe Price’s earnings outpaced the Zacks Consensus Estimate on higher revenues, backed by a rise in investment advisory fees. Also, assets under management (AUM) improved. However, escalating expenses were an undermining factor.

T. Rowe Price recorded earnings surprises in all of the trailing four quarters, the average beat being 6.25%.

Notably, the company’s activities in the third quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate of $2.54 for earnings moved upward over the last seven days. The figure indicates a year-over-year increase of 19.3%.

The Zacks Consensus Estimate for quarterly sales is pegged at $1.61 billion, suggesting an increase of 12.9% year over year.

 

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

T. Rowe Price Group, Inc. price-eps-surprise | T. Rowe Price Group, Inc. Quote

Key Factors

Overall Inflows Likely: T. Rowe Price is likely to have witnessed net inflows on a combined basis, having recorded inflows in fixed income products, partly offset by continued outflows in other investment portfolios during the to-be-reported quarter.

Furthermore, equity markets put up an encouraging performance during the quarter in review, with the S&P 500 Index rallying 8.93% sequentially. Therefore, the company’s results will likely reflect a rise in AUM on overall inflows and market returns. Hence, investment advisory fees might have been positively impacted.

Investment management fees of $1.47 billion are likely to reflect a 14% sequential rise. Also, Administrative, service and distribution fees of $126 million suggest a 3.3% sequential increase.

Notably, the Zacks Consensus Estimate for AUM is pinned at $1.3 billion, up 8.3% on a sequential basis, while net cash outflows are projected at $4.1 billion compared with the inflows of $14.7 billion recorded in the prior quarter.

Revenue Growth: T. Rowe Price’s efforts to improve its operating efficiency have resulted in year-over-year top-line growth, over the past few years. We believe the bank is well poised to sustain this encouraging uptrend in the near term as well. This comes on the back of several planned initiatives largely tied with launching investment strategies and vehicles, enhancing client-engagement capabilities in each distribution channel, strengthening distribution channel in the United States, EMEA, and the Asia Pacific, and boosting its technology platform and deriving long-term cost efficiencies.

Rising Expenses: T. Rowe Price has not updated on anything related to its cost-control initiatives during the July-September period. It incurs significant expenditures to attract new investment advisory clients and additional investments from existing clients. T. Rowe Price expects a 3-6% expense rise for 2020, on increase in AUM-related expenses. Remarkably, the company anticipates capital expenditures to be approximately $225 million, including three-fourth for technology development. Therefore, the quarterly results might reflect the impact of such projections as well.

Here is what our quantitative model predicts:

T. Rowe Price does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: The Earnings ESP for T. Rowe Price is 0.00%.

Zacks Rank: T. Rowe Price currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Banks Worth a Look

Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +1.4% and the stock carries a Zacks Rank of 3, at present. The company is slated to report third-quarter numbers on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Global Management, LLC APO is set to release earnings figures on Oct 29. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.04%.

Fidelity National Information Services, Inc. FIS is scheduled to announce quarterly results on Oct 29. The company has an Earnings ESP of +0.23% and currently holds a Zacks Rank of 3.

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Fidelity National Information Services, Inc. (FIS): Free Stock Analysis Report
 
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CullenFrost Bankers, Inc. (CFR): Free Stock Analysis Report
 
Apollo Global Management, LLC (APO): 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.

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