T. Rowe Price (TROW) To Post Q3 Earnings: A Beat In Store?

With revenues and earnings projected to grow year over year, T. Rowe Price Group, Inc. (NASDAQ:TROW) is scheduled to report third-quarter 2017 results, before the opening bell on Oct 26.

Why a Likely Positive Surprise?

Our proven model shows that T. Rowe Price is likely to beat on earnings in the third quarter. This is because the company has the combination of two key ingredients for a possible earnings beat — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +3.25%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of T. Rowe Price’s Zacks Rank #2 and a positive ESP makes us confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated stocks) going into an earnings announcement.

Below is the company’s earnings surprise history as depicted in the chart:

T. Rowe Price Group, Inc. Price and EPS Surprise

T. Rowe Price Group, Inc. Price and EPS Surprise | T. Rowe Price Group, Inc. Quote

Shares of T. Rowe Price gained around 22.2% during the third quarter (ended Sep 30, 2017), outperforming the 8.1% rally of the industry it belongs to.

Factors to Influence Q3 Results

Mutual Fund Products Performance: According to the Morningstar data, T. Rowe Price witnessed around $2.9 billion of net inflows in U.S. mutual fund products in the to-be-reported quarter.

Moreover, the company is likely to record a rise in assets under management (AUM) as the third quarter experienced decent performance of equity markets. Notably, the S&P 500 index gained 4.5% in the quarter, which is likely to benefit T. Rowe Price, given its equity-heavy asset mix. Notably, the Zacks Consensus Estimate for assets under management is $911 billion, up 4.6% sequentially.

Insignificant Fee Waivers: Management believes with the gradually improving interest-rate environment, fee waivers in its money market mutual funds and trusts would be insignificant.

Revenue Growth: T. Rowe Price’s efforts to improve its operating efficiency have resulted in year-over-year top-line growth over the past few years. We believe the company is well poised to sustain this upbeat uptrend, going forward, on the back of several planned initiatives largely tied with launching investment strategies and vehicles, enhancing client engagement capabilities in each distribution channels, strengthening distribution channel in the United States, EMEA, and the Asia Pacific, and improving its technology platform and deriving long-term cost efficiencies.

Expenses to Escalate: The company did not point out anything related to its cost-control initiatives during the quarter, due to its several planned strategic actions. T. Rowe Price projects operating expenses for 2017 at growth rate of 10% (excluding the charge tied with the Dell appraisal rights matter) and 7% for 2018. Notably, the company is anticipating capital expenditures in 2017 to be approximately $200 million, including two-third for technology development.

However, this investment manager could not win analysts’ confidence during the quarter. The Zacks Consensus Estimate remained unchanged at $1.41, over the last seven days, reflecting a year-over-year improvement of 20.9%. The Zacks Consensus Estimate for sales of $1.21 billion indicates around 10.6% growth from the prior-year quarter.

Stocks that Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Lazard Ltd. (NYSE:LAZ) is scheduled to report third-quarter results on Oct 26. It has an Earnings ESP of +1.39% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Franklin Resources, Inc. (NYSE:BEN) is +0.56% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Oct 26.

Fifth Third Bancorp (NASDAQ:FITB) has an Earnings ESP of +0.25% and holds a Zacks Rank of 2. It is scheduled to report results on Oct 24.

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