T.Rowe Price Group Inc Valuation – June 2017 $TROW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how T. Rowe Price Group Inc (TROW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): T. Rowe Price Group, Inc. is a financial services holding company. The Company provides global investment management services through its subsidiaries to investors across the world. The Company provides an array of Company sponsored the United States mutual funds, other sponsored pooled investment vehicles, sub advisory services, separate account management, recordkeeping, and related services to individuals, advisors, institutions, financial intermediaries and retirement plan sponsors. The Company distributes its products in countries located within three geographical regions: North America, Europe Middle East and Africa (EMEA), and Asia Pacific (APAC). It also offers specialized advisory services, including management of stable value investment contracts and a distribution management service for the disposition of equity securities its clients receive from third-party venture capital investment pools. As of December 31, 2016, it serviced clients in 45 countries across the world.

TROW Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TROW – June 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,168,532,991 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 148.00% Pass
5. Moderate PEmg Ratio PEmg < 20 15.34 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.68 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.89
MG Growth Estimate 7.74%
MG Value $117.33
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $70.94
MG Value based on 0% Growth $41.59
Market Implied Growth Rate 3.42%
Current Price $75.04
% of Intrinsic Value 63.96%

T. Rowe Price Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  high PB ratio. The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.23 in 2013 to an estimated $4.89 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into T. Rowe Price Group Inc revealed the company was trading above its Graham Number of $50.32.  The company pays a dividend of $2.16 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 15.34, which was below the industry average of 21.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

T. Rowe Price Group Inc performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $50.32
PEmg 15.34
PB Ratio 3.68
Dividend Yield 2.88%
TTM Dividend $2.16
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Long-Term Debt & Capital Lease Obligation $0
Total Assets $6,275,600,000
Intangible Assets $665,700,000
Total Liabilities $1,275,400,000
Shares Outstanding (Diluted Average) 245,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.50
Dec2016 $4.75
Dec2015 $4.63
Dec2014 $4.55
Dec2013 $3.90
Dec2012 $3.36
Dec2011 $2.92
Dec2010 $2.53
Dec2009 $1.65
Dec2008 $1.82
Dec2007 $2.40
Dec2006 $1.90
Dec2005 $1.58
Dec2004 $1.26
Dec2003 $0.88
Dec2002 $0.76
Dec2001 $0.76
Dec2000 $1.04
Dec1999 $0.93
Dec1998 $0.67
Dec1997 $0.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.89
Dec2016 $4.47
Dec2015 $4.18
Dec2014 $3.79
Dec2013 $3.23
Dec2012 $2.75
Dec2011 $2.38
Dec2010 $2.09
Dec2009 $1.87
Dec2008 $1.92
Dec2007 $1.85
Dec2006 $1.47
Dec2005 $1.19
Dec2004 $0.98
Dec2003 $0.85
Dec2002 $0.83
Dec2001 $0.84

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2016
Dividend Growth Stocks for Intelligent Investors – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
T.Rowe Price Group Inc Stock Valuation – February 2016 $TROW
Dividend Growth Stocks for Intelligent Investors – February 2016

Other ModernGraham posts about related companies

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Franklin Resources Inc Valuation – February 2017 $BEN
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CME Group Inc Valuation – February 2017 $CME
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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