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T. Rowe Price's (TROW) Revenues & AUM Aid Amid Rising Expenses

T. Rowe Price Group's TROW organic growth and business expansion are key strengths for the company. However, a rise in operating expenses and increased dependence on investment advisory fees are likely to affect it’s financials in the near term.

Though the company's net revenues decreased in the first quarter of 2023, it witnessed a compound annual growth rate (CAGR) of 2.2% over a three-year period (ended 2022). Going forward, the company’s efforts to strengthen distribution channels in different geographic regions and mix shift toward international growth funds will drive top-line growth.

T. Rowe Price has been able to sustain positive earnings throughout the global financial crisis, supported by its diverse business model. The company's assets under management (AUM) witnessed a CAGR of 5.2% over the past six years (2017-2022). However, the trend declined in first-quarter 2023 due to weaker markets. Nonetheless, its diversified AUM across asset classes and client base is likely to support earnings in the upcoming period. We estimate the AUM balance to grow 3.1% this year.

TROW has successfully expanded its business operations through several opportunistic deals over the years. In April 2023, it acquired Retiree, a fintech firm providing innovative retirement income planning software.

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Further, T. Rowe Price expanded its footprint and capabilities through the acquisition of Oak Hill Advisors in December 2021. With this acquisition, it bulked up its offerings in the alternative investment market space. We believe such endeavors will likely support its prospects in the long term.

TROW’s substantial liquidity, which included total cash and investments of $4.49 billion as of Mar 31, 2023, enables capital deployment activities. The company has hiked quarterly dividends every year since its IPO in 1986, the most recent being a sequential hike of 1.6% in February 2023. Also, in the first quarter of 2023, it repurchased 25,000 shares at an average price of $109.83 per share. Such efforts reflect the company’s commitment to enhancing shareholder value.

Further, analysts are optimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for TROW's current-year earnings has been revised marginally upward over the last seven days. The company currently carries a Zacks Rank #3 (Hold).

In the past three months, shares of TROW have fallen 0.9% compared with the industry's 4.4% decline.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, rising operating expenses are a major concern for the company. Expenses saw a three-year (2020-2022) CAGR of 9%. The rising trend continued in the first quarter of 2023.

As TROW continues to incur expenses to attract new clients and make additional investments from existing clients, its ability to expand the bottom line might get hampered. Our estimate for non-GAAP operating expenses implies a five-year CAGR of 5.3% by 2025.

Investment advisory fees are the biggest revenue source for T. Rowe Price. The increased dependence on these can affect the company's financials in the near term because of the AUM changes, owing to market fluctuations and foreign exchange translation, regulatory changes or a sudden slowdown in business activities.

Further, the bulk of assets managed by T. Rowe Price is invested in U.S. equities, which seems to be another concerning factor. Despite the company’s efforts to adopt various strategies to diversify its product mix across other asset classes and geographies, concentration in U.S. equities is a significant risk that could lead to inconsistent asset flows.

Finance Stocks Worth a Look

A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. CASH and First Citizens BancShares FCNCA.

The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 60 days. Its shares have gained 11% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).

First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA shares have rallied 60%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report

Pathward Financial, Inc. (CASH) : Free Stock Analysis Report

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