T. Rowe Gains Record AUM of $1.518 Trillion in Q1

There was little in wide-moat rated T. Rowe Price's TROW first-quarter results that would alter our long-term view of the firm. We are leaving our $170 per share fair value estimate in place. T. Rowe Price closed out the March quarter with a record $1.518 trillion in managed assets, up 3.2% sequentially and 52.6% on a year-over-year basis. Net inflows of $1.2 billion during the first quarter were slightly worse than our expectations, which we had expected to be more on par with the $2.1 billion quarterly run rate we've seen from the firm the past five years. Even so, we still see the firm generating low-single-digit organic AUM growth this year as the company moves closer to the time when retiring baby boomers are less of a drag on its flows.

While average AUM was up 29.8% year over year during the March quarter, T. Rowe Price reported a 24.9% increase in revenue when compared with the prior-year's period, due to product mix shift and a slight decline in the firm's effective fee rate. We still envision full-year top-line growth coming in at a low-double-digit rate this year, with revenue expanding at a mid-single-digit rate during 2021-25. As for profitability, adjusted GAAP operating margins of 48.9% during 2021 were 50 basis points higher than the year-ago period, as expenses rose at a slightly slower rate than revenue. Full-year profitability still looks on course to end up the year at around 45% (compared with the adjusted GAAP operating margin of 44.2% that T. Rowe Price put up in 2020). Our five-year forecast calls for operating margins in a 44% to 46% range, as the firm continues to invest in key regions and channels to help drive growth.

T. Rowe price increased its quarterly dividend 20% to $1.08 during the first quarter, which implies a yield of 2.4% based on today's trading price on the shares. The company also repurchased 1.6 million shares for $268 million during the March quarter.

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