Morningstar

Market Gains Lift T. Rowe Price's AUM to Record

We expect to raise our fair value estimate to $202 per share from $193 to account for continued improvements in the company's assets under management.

While there was little in wide-moat-rated T. Rowe Price’s second-quarter results that would alter our long-term view of the firm, we expect to raise our fair value estimate to $202 per share from $193 to account for continued improvements in the company’s assets under management, as well as adjustments to our own near- to medium-term forecasts since our last update.

T. Rowe Price closed the June quarter with a record $1.623 trillion in managed assets, up 6.9% sequentially and 33.0% year over year. Net outflows of $600 million during the quarter were slightly worse than our expectations of being more on par with the $1.9 billion quarterly run rate for inflows we've seen from the firm the past five years. It also marks only the 16th time that T. Rowe Price has reported quarterly outflows in the past two decades. Even so, we still see the firm generating flattish organic AUM growth this year as it moves closer to the period when retiring baby boomers are less of a drag on flows.

With average AUM up 39.0% year over year during the June quarter, T. Rowe Price reported a 36.3% increase in net revenue when compared with the prior-year period (owing to product mix shift and a slight decline in the firm's effective fee rate). First-half top-line growth of 30.5% was stronger than our full-year forecast, and while we do expect revenue growth to come down to more normal levels in the back half of the year, we have revised our full-year forecast to around 25% (from 22.5%).

Adjusted operating margins of 49.3% during the first half of 2021 were 560 basis points higher than the year-ago period. Much as with revenue, we see operating profits normalizing more in the back half of the year, with full-year profitability looking to be 47%-48% (compared with the 44.2% that the firm put up in 2020), which represents a slight increase in our operating margin projection for 2021.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Greggory Warren, CFA

Strategist
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Greggory Warren, CFA, is a strategist, AM Financial Services, for Morningstar*. He covers the traditional US- and Canadian-based traditional asset managers, as well as the alternative asset managers and Berkshire Hathaway. Over the course of his career, Warren has covered not only financial services names but companies from the consumer staples and consumer cyclicals sectors, and been involved in portfolio stock selection and management.

Prior to joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than eight years, covering consumer staples and consumer cyclicals. Before assuming his current role at Morningstar in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered the non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago.

During 2014-19, Warren was selected to participate each year on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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