T. Rowe Price Group, Inc. (TROW) REPORT Gabelli research analyst Mac Sykes (1-31-2018)

T. Rowe Price Group, Inc. (TROW) REPORT Gabelli research analyst Mac Sykes (1-31-2018)

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We are recommending T. Rowe Price as our best idea for 2018. T. Rowe Price based in Baltimore, Maryland is one of the largest investment management companies with close to $1 trillion of AUM.

The company has 242 million shares outstanding, trading around $117 for an equity mark capitalization of $28 billion. Flow trends have stabilized with the firm starting to generate organic growth.
Over the last few years under the leadership of CEO, Bill Stromberg, the firm has made investments in distribution and product innovation.

These initiatives and very strong investment performance are providing intermediate tailwinds for asset gathering. EPS growth has been hindered by increased technology spend on client platforms, digital initiatives and back-office operations.

In 2017 alone, management is planning to spend 2/3 of its $200mn capital expenditure budget on technology. We expect this level of spending to decelerate going forward and at the same time see benefits from operational efficiencies thereby boosting margins and EPS growth.

Given its concentration of US business, T. Rowe is a full corporate tax payer and will benefit from rate reform. This will further boost EPS and cash flow generation enhancing the already fortress balance sheet of roughly $4bn of cash and no debt.

Despite a strong performance in 2017, we continue to believe in the positive outlook for T. Rowe Price.

We estimate EPS will grow from $5.30 in 2017 to almost $8.00 by 2019 and we calculate a 2019 Private Market Value estimate of $137 per share.

Source: Gabelli TV (via YouTube)
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