Financial Services Stocks

T. Rowe Price Group Inc Valuation – June 2018 $TROW

Company Profile (excerpt from Reuters): T. Rowe Price Group, Inc., incorporated on February 4, 2000, 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.

TROW Chart

TROW data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TROW – June 2018

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $28,836,464,613 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.87 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 148.03% Pass
6. Moderate PEmg Ratio PEmg < 20 20.79 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.07 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.76
MG Growth Estimate 7.81%
MG Value $138.96
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $83.51
MG Value based on 0% Growth $48.95
Market Implied Growth Rate 6.15%
Current Price $119.74
% of Intrinsic Value 86.17%

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 PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.79 in 2014 to an estimated $5.76 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.15% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to 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 $60.69. The company pays a dividend of $2.28 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 20.79, which was below the industry average of 22.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.21.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.21
Graham Number $60.69
PEmg 20.79
Current Ratio 3.87
PB Ratio 5.07
Current Dividend $2.28
Dividend Yield 1.90%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $2,275,000,000
Total Current Liabilities $588,200,000
Long-Term Debt $0
Total Assets $7,374,300,000
Intangible Assets $665,700,000
Total Liabilities $1,472,400,000
Shares Outstanding (Diluted Average) 249,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.89
Dec2017 $5.97
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.76
Dec2017 $5.05
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

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
10 Best Stocks for Value Investors This Week – 7/22/17
T.Rowe Price Group Inc Valuation – July 2017 $TROW
T.Rowe Price Group Inc Valuation – June 2017 $TROW
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017

Other ModernGraham posts about related companies

Charles Schwab Corp Valuation – June 2018 $SCHW
Willis Towers Watson PLC Valuation – Initial Coverage June 2018 $WLTW
PayPal Holdings Inc Valuation – June 2018 $PYPL
Synchrony Financial Valuation – June 2018 $SYF
CBRE Group Inc Valuation – June 2018 $CBRE
Franklin Resources Inc Valuation – May 2018 $BEN
S&P Global Inc Valuation – May 2018 $SPGI
Equifax Inc Valuation – May 2018 $EFX
CME Group Inc Valuation – May 2018 $CME
Discover Financial Services Valuation – May 2018 $DFS

Disclaimer:

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top