T. Rowe Price Group, Inc. (TROW) is scheduled to report third-quarter 2014 results before the opening bell on Thursday, Oct 23.
In the last quarter, this asset manager delivered a 0.89% positive earnings surprise, driven by strong top-line performance. Improved assets under management (AUM) and a strong capital position were the positives. However, elevated operating expenses were a concern.
Will T. Rowe Price be able to beat earnings after combating 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 Drive Q3 Results
Though the overall market remained volatile during the quarter, major U.S. equity indexes witnessed an uptick that favorably impacted the investment management industry. Thus, we believe T. Rowe Price has benefited from this favorable trend.
T. Rowe Price’s efforts to improve operating efficiency resulted in year-over-year growth in the top line in the prior quarter. We expect the upcoming results to show a similar trend, given the company’s strength in investment advisory, administrative and distribution. Further, expected improvement in AUM should significantly support its results.
On the other hand, the company’s inability to reduce expenses is a major concern. The past few quarters witnessed rising expenses. We do not expect this trend to reverse this time as well. Though the company did not indicate anything related to its cost control initiatives during the quarter, total advertising and promotion costs for 2014 are anticipated to decrease 5%–10% year over year. Notably, T. Rowe Price is expecting capital expenditures in 2014 to be approximately $150 million for property and equipment additions.
Activities of T. Rowe Price during the third quarter of the year were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter decreased by a penny to $1.15 per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that T. Rowe Price is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3(Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
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 $1.15 per share.
Zacks Rank: T. Rowe Price’s Zacks Rank #4 (Sell) further lowers the predictive power of ESP.
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:
Arlington Asset Investment Corp. (AI) has an earnings ESP of +7.34% and sports a Zacks Rank #1. It is scheduled to report results on Oct 27.
CIT Group Inc. (CIT) has an earnings ESP of +11.36% and a Zacks Rank #3. It is slated to report results on Oct 28.
GAIN Capital Holdings, Inc. (GCAP) has an earnings ESP of +125.0% and holds a Zacks Rank #3. It is scheduled to report results on Oct 30.
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