Tags: TROW | BEN | funds | stocks

T. Rowe Price: Profitable, but Market Cyclical

By    |   Tuesday, 04 Oct 2011 11:55 AM

Mutual fund and asset management company T. Rowe Price (TROW) provides an alternative way to invest in mutual funds, buying shares in the fund manager rather than buying mutual funds themselves. But the fortunes of a fund management company such as T. Rowe Price tend to rise and fall on investor sentiment about the market and about mutual fund investments.

T. Rowe Price has more than $500 billion in assets under management, of which about $300 billion is mutual fund assets. The balance is institutional asset management. The mutual fund family consists of more than 90 no-load funds. A majority of T. Rowe Price mutual funds are rated higher than their peers by Morningstar and by Lipper Analytical Services.

For the first half of 2011, revenues increased by 23 percent to $1.4 billion, up from $1.13 billion. Net income for the half-year came to $1.49, up 27 percent from $1.17. The consensus estimated earnings for full year 2011 is $3.03 compared to $2.54 earned in 2010.

For 2011, the T. Rowe Price board of directors increased the quarterly dividend by 15 percent to 31 cents per share, up from 27 cents in 2011. The dividend distribution for TROW has increased every year since the company went public in 1986.

Cash flows watched

Those active in the stock market keep a close watch on the net cash flows in and out of mutual funds. The results have a significant effect on the short term share price of mutual fund management companies like T. Rowe Price and competitors such as Franklin Resources (BEN).

When the market is going up, investors put more money into stock mutual funds. In a down market, they pull out money. Bond mutual funds run on a similar cycle with changing interest rates. Rising rates hurt bond and bond fund prices, resulting in redemptions.

The result of this market view of mutual fund companies is fairly volatile stock prices. T. Rowe Price has a beta of 1.6, meaning the stock is 60 percent more volatile than the overall market. This level of volatility is not usually seen in such an established company with a strong dividend history.

Recently, the analysts at Jefferies and Company reduced their target price on TROW while maintaining a buy rating on the stock. The company next reports financial results on Oct. 25.

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Mutual fund and asset management company T. Rowe Price (TROW) provides an alternative way to invest in mutual funds, buying shares in the fund manager rather than buying mutual funds themselves. But the fortunes of a fund management company such as T. Rowe Price tend to...
TROW,BEN,funds,stocks
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2011-55-04
Tuesday, 04 Oct 2011 11:55 AM
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