Our Fair Value and Long-Term View for T. Rowe Remains
We are making no changes to our fair value estimate for the wide-moat firm despite outflows and market losses from the first quarter.
There was little in wide-moat T. Rowe Price's (TROW) first-quarter results that would alter our long-term view of the firm. We are leaving our $114 per share fair value estimate in place. T. Rowe Price closed out the March quarter with a record $1.009 trillion in managed assets, down 16.4% sequentially and 6.7% on a year-over-year basis. Net outflows of $6.0 billion during the quarter were on par with our expectations, and well off the positive $2.4 billion quarterly run rate we've seen for net flows at T. Rowe Price since the end of the 2008-09 financial crisis. Target-date funds still pulled in $300 million on a net basis during the first quarter, despite the pressure from more volatile equity and credit markets.
While average AUM was up 11.4% year over year during the March quarter, T. Rowe Price reported a 10.2% increase in revenue when compared with the prior year's period, due to product mix shift and a decline in the firm's effective fee rate to 0.459% from 0.464% during the first quarter of 2019. At this point, we still expect full-year revenue to decline at a high-single to double-digit rate, driven by our expectations for continued volatility in the equity and credit markets in response to the COVID-19 pandemic.
As for profitability, adjusted operating margins of 44.2% during the first quarter of 2020 were 110 basis points higher than the year-ago period, as expenses rose at a slower rate than revenue during the March quarter. Our current five-year forecast calls for operating margins in a 38% to 40% range, as the firm continues to make upfront investments in key regions and channels to help drive growth (and is likely to continue to take advantage of its better margin profile relative to peers to make additional investments that will help spur organic growth).
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.