On Monday, TD Cowen shifted its stance on T. Rowe Price Group Inc. (NASDAQ:TROW), upgrading the investment management firm's stock from Sell to Hold while also raising its stock price target to $114 from the previous $92. This adjustment comes as a result of a reassessment of the company's earnings and performance outlook.
The analyst at TD Cowen cited several reasons for the upgrade, including a significant increase in base earnings and a modest rise in the target price-to-earnings ratio on the base business. Additionally, the contribution from the Alternatives sector has been reevaluated, reflecting a revaluation of pure play Alternatives.
The upgrade is further supported by the strong market performance year-to-date and T. Rowe Price's asset composition, which includes 52% in Equity and 33% in Multi-Asset as of December 31, according to assets under management (AUM) data. The firm's adjusted earnings per share (EPS) for 2024 have been increased by 10%, and the estimate for 2025 has risen by 13%, setting a new, higher baseline level of EPS.
Despite observing adverse seasonal flow trends into the second quarter, the analyst foresees a moderately more favorable flow outlook through 2025. This outlook is influenced by the market backdrop and improvements in relative performance. The forecast for annualized loss rates has been adjusted to -2% and -80 basis points for 2024 and 2025, respectively, compared to the previous -2.5% and -130 basis points.
The revised estimates place TD Cowen 12% ahead of the consensus for 2024 and 14% ahead for 2025, although the analyst notes that these figures are transitory due to the timing of the estimate revisions. The new price target, combined with a 4% forward twelve-month yield, is expected to offer a flat total return, justifying the Hold rating as opposed to the previous Sell recommendation.
InvestingPro Insights
Following TD Cowen's reassessment of T. Rowe Price Group Inc. (NASDAQ:TROW), it's valuable to consider additional insights that InvestingPro provides. The company's ability to maintain dividend payments for an impressive 39 consecutive years, as highlighted by InvestingPro Tips, is a testament to its financial stability and commitment to shareholder returns. This is complemented by the fact that TROW's liquid assets exceed its short-term obligations, indicating a solid liquidity position.
From a valuation standpoint, TROW is currently trading at a P/E ratio of 15.15, which is attractive given the near-term earnings growth, another point underscored by InvestingPro Tips. The company's revenue growth in the most recent quarter shows a significant uptick of 7.73%, and with analysts predicting profitability this year, the outlook for earnings seems encouraging.
Furthermore, with a market capitalization of $26.42 billion and a robust return on assets of 15.35% for the last twelve months as of Q1 2023, TROW's financial health appears robust.
For readers seeking a deeper dive into T. Rowe Price's financials and strategic positioning, there are additional InvestingPro Tips available at https://www.investing.com/pro/TROW. And remember, for those interested in accessing a comprehensive suite of investment tools, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, where even more tips await—currently listing 5 more tips to help inform your investment decisions.
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