On Friday, Citi made an adjustment to the financial outlook for T. Rowe Price (NASDAQ:TROW) shares, raising its price target to $125 from the previous $110 while maintaining a Neutral rating on the stock.
The decision comes after Citi updated its earnings per share (EPS) estimates, citing positive market conditions and a reduction in the pace of outflows from the fourth quarter of 2023.
The revised first quarter 2024 EPS estimate now stands at $2.18, up from $2.04, reflecting a more favorable view on the financial performance of the company. Despite the modification in EPS estimates, the analyst noted that outflows are expected to continue, albeit at a slower rate than seen in the previous quarter.
The report also highlighted that some of T. Rowe Price's key growth funds have shown strong performance recently, which could eventually lead to positive flows, though this is expected to happen with a delay.
Furthermore, T. Rowe Price has experienced a significant redemption of $1 billion in the quarter within its alternative investments. Fee rates are also anticipated to normalize following a $25 million performance fee recorded in the fourth quarter of 2023. Adjusted operating expenses for the first quarter of 2024 are projected to be lower at $1.07 billion compared to $1.15 billion in the previous quarter, attributed to seasonal patterns in compensation and advertising costs.
Looking ahead, Citi forecasts that average assets under management (AUM) will exert some pressure on variable expenses, assuming AUM remains stable or grows. Consequently, the estimates for the fiscal years 2024 and 2025 have been increased to $8.44 and $8.18, up from $7.90 and $7.93, respectively. The raised price target of $125 reflects a multiple of 14.8x and 15.3x the new EPS estimates for 2024 and 2025, representing an approximate 8% upside from current levels.
InvestingPro Insights
In light of Citi's revised financial outlook for T. Rowe Price, current data from InvestingPro provides further perspective on the company's valuation and potential for investors. T. Rowe Price is trading at a P/E ratio of 15.1, which is considered low relative to its near-term earnings growth potential. This aligns with Citi's positive adjustment of the EPS estimates and the raised price target. Additionally, with a strong history of dividend payments, T. Rowe Price has maintained dividend distributions for 39 consecutive years, showcasing its commitment to returning value to shareholders. The current dividend yield stands at an attractive 4.27%.
The company's financial health is further reinforced by the fact that its liquid assets exceed short-term obligations, ensuring a stable financial base for ongoing operations. Moreover, analysts predict that T. Rowe Price will remain profitable this year, with profitability sustained over the last twelve months. This is supported by an operating income margin of 31.55% in the last twelve months as of Q1 2023. These metrics underscore the company's potential for sustained growth and stability.
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