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Why Is T. Rowe Price (TROW) Down 2.1% Since the Last Earnings Report?

It has been about a month since the last earnings report for T. Rowe Price Group, Inc. TROW. Shares have lost about 2.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

T. Rowe Price's Q1 Earnings Lag, Revenues Up Y/Y

T. Rowe Price reported negative earnings surprise of 1.7% for first-quarter 2017. Adjusted earnings per share of $1.18 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 16.8% from the year-ago figure of $1.01.

Lower-than-expected results highlighted elevated operating expenses. However, top-line growth and higher AUM remained positives.

Including certain non-recurring items, net income came in at $385.9 million or $1.54 per share compared with $304.1 million or $1.18 per share recorded in the prior-year quarter.

Revenue Growth Displayed, Expenses Flare Up

Net revenue rose 12% to $1.11 billion from the year-ago quarter. The rise was primarily stemmed by higher investment advisory fees that grew 13.8% year over year to $991.1 million. Moreover, net revenue surpassed the Zacks Consensus Estimate of $1.10 billion.

Distribution and servicing fees rose 3.8% to $35.2 million. However, administrative fees declined 2.3% to $87.3 million on a year-over-year basis.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the U.S., were up 13.2% year over year to $715.8 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 15.3% from the prior-year quarter to $275.3 million.

Total adjusted operating expenses were up 10.0% year over year to $640.1 million in the quarter. Including certain one-time items, net of insurance recovery, associated with the Dell appraisal rights matter, expenses were $591.9 million, up 1.5%.

As of Mar 31, 2017, T. Rowe Price employed 6,474 associates, 5.5% higher than last year.

Strong Assets Position

As of Mar 31, 2017, total AUM climbed 12.7% year over year to $861.6 billion. During the quarter, net market appreciation and income, came in at $50.1 billion, while net cash inflow was $0.7 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.2 billion as of Mar 31, 2017, which assist the company to keep on investing.

Capital Deployment Activity

During first-quarter 2017, T. Rowe Price repurchased 4.6 million shares of its common stock for $316.3 million, and invested $46.9 million in capitalized technology and facilities using available cash balances.

For 2017, the company projects capital expenditures to be approximately $200 million, comprising two-third for technology development.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There has been one revision higher for the current quarter compared to four lower.

T. Rowe Price Group, Inc. Price and Consensus

 

T. Rowe Price Group, Inc. Price and Consensus | T. Rowe Price Group, Inc. Quote

VGM Scores

At this time,the stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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