T. Rowe Price Group, Inc. TROW is scheduled to report first-quarter 2016 results, before the opening bell on Apr 26.
In the last quarter, this banking giant delivered a 6.4% positive earnings surprise, beating the Zacks Consensus Estimate. Top-line growth and improved assets under management were the positives. However, lack of prudent expense management has been a drag.
Now, the question is, will T. Rowe Price be able to beat earnings in spite of the challenges that the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q1 Results
T. Rowe Price’s efforts to improve operating efficiency resulted in year-over-year growth in the top line over the past few quarters. We believe the company is well positioned to maintain this trend going forward based on strong inflow and growing fixed income. Moreover, penetration into the advisory market will enhance the company’s growth prospects.
The company is making efforts to expand internationally as well. Though it is taking time, the company is expected to revive long-term asset growth prospects.
T. Rowe Price’s bottom-line is faced with challenges like escalating operating expenses. Also, the asset management business is under cyclical pressure and margins are also under pressure in the current low rate scenario. Also, the past few quarters witnessed rising expenses and we do not expect this trend to reverse anytime soon.
Though the company did not indicate anything related to its cost-control initiatives during the quarter, total advertising and promotion costs for 2016 are anticipated to be on par with 2015 levels. Notably, T. Rowe Price is expecting capital expenditures in 2016 to be approximately $180 million for property and equipment additions along with technology development.
Most importantly, this investment manager failed to impress analysts with its level of activities during the quarter. The weakness surrounding the industry and the company's financials, which are highly susceptible to such negatives, forced many analysts to lower their earnings estimates. The Zacks Consensus Estimate has moved down around 1% to $1.02 per share over the last 7 days.
Earnings Whispers
T. Rowe Price posted positive surprise in two of the prior four quarters, the average being a positive earnings surprise of 0.24% for the trailing four quarters.
However, our proven model does not conclusively show that T. Rowe Price is likely to beat the Zacks Consensus Estimate in the first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Zacks ESP: The earnings ESP for T. Rowe Price is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.02.
Zacks Rank: Though T. Rowe Price’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The earnings ESP for Affiliated Managers Group Inc. AMG is +0.68% and it carries a Zacks Rank #2. The company is expected to release first-quarter results on Apr 26.
Waddell & Reed Financial, Inc. WDR has an earnings ESP of +1.82% and a Zacks Rank #3. It is expected to report first-quarter results on Apr 26.
The earnings ESP for Federated Investors, Inc. FII is +2.33% and it carries a Zacks Rank #3. The company is slated to release first-quarter results on Apr 28.
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T ROWE PRICE (TROW): Free Stock Analysis Report
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