A presentation on T. Rowe Price and why the stock looks very attractive in an overvalued market

1. Carter Henderson
Student
Duquesne University
Long: T. Rowe Price Group
A Resurgence of Active Management
Current Price: $69.99
Target Price: $100.34
Return: 43.4%

2. • Investment Conviction:
1. Overblown active vs. passive investing debate
2. False perception of slowdown in growth and
beating peers on top and bottom line
3. Attractive pricing
4. Well positioned for DOL fiduciary ruling
(No load funds)
5. Introduction of new active managed Robo
Advisor
T. Rowe investment summary T. Rowe Valuation Metrics
Price- 4/11/17 $69.99
52 Week Range $62.97-$79.00
Yield 3.27%
Shares Outstanding 241.77
Market Value 17,030mm
Cash 1,280mm
Enterprise Value 15,820mm
2017 Revenue Estimate* 4,528mm
EV/Revenue Estimate 3.49x
2017 EPS Estimate $5.10
Forward P/E 13.7x
Return on Assets 19.85%
Return on Equity 23.98%
*Data from Value Line research
5/8/2017
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3. Company Overview
T. Rowe Price is a global investment management organization with $810.8 billion in assets under management as
of December 31, 2016. The organization provides a broad array of mutual funds, subadvisory services, and separate account
management for individual and institutional investors, retirement plans, and financial intermediaries.
*Morningstar 80% of T. Rowe fund assets are
rated 4* or better by
Morningstar. Also 60% of share
classes have below average
fees
On average, T. Rowe’s institutional
active mutual funds have topped
their respective benchmarks by 19
basis points over the trailing three-
year period and 45 basis points
over the trailing five-year period.
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4. Industry Analysis – Asset Managers
*Barron’s Data 2/11/2017 *Barron’s Data 7/9/2016
Mutual Fund assets are still
5x larger than ETF assets
T. Rowe Price ranks among the top five fund families in the past five years.
5th largest market share with room to grow.
2016 outflows are small compared to competitors.
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5. Opportunities in Active Management
1.
Continuous outflow of capital
from active to passive managers.
2.
But T. Rowe has outperformed the
largest passive managers since the
election in November.
Peel away the layers and one can find opportunities for active management
3.
4.
Small caps and European stocks tend
to provide investors opportunities to
add alpha to their portfolios. The
Russell 2000 Value ranked in the
bottom half until recently.
The return rank for the MSCI EM index
is very inconsistent, which provides
active managers the opportunity to
outperform more consistently.
*ThinkAdvisor 4/6/2017
*ThinkAdvisor 4/6/2017 *ThinkAdvisor 4/6/2017
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6. • Active managers with concentrated portfolios may regularly engage with the companies in
which they are invested to ensure that clients’ capital is being applied to what they believe
in
• Find companies that are led by management teams that have good track records of creating
long-term shareholder value
• Investment managers achieve best corporate governance practices by engaging with
companies during due diligence visits before they invest clients’ funds
• Investing in the shares of a company for reasons beyond its inclusion in a benchmark
The Active Advantage In Corporate Governance
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7. No Slowdown in Growth
Average annual Growth
Rate = 9.27%
Average annual Growth
Rate = 8.90%
* Data from financial times
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8. Beating Peers on the Top and Bottom LineThe earnings of T. Rowe are analyzed along side mutual fund peers – Federated Investors, Inc., Eaton Vance Corp., Franklin Resources, Inc., Waddell & Reed Financial, Inc.,
Affiliated Managers Group, Inc., Ameriprise Financial, Inc., AllianceBernstein Holding L.P., U.S. Global Investors, Inc. and Virtus Investment Partners, Inc.
Earnings are 3x larger than
competitors over the last
year
Revenues are 2.5x larger
than competitors over the
last year
• Superior Efficiency
• Holding onto market share
• Cost Advantage
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9. Strong Margin Leader
The earnings of T. Rowe are analyzed along side mutual fund peers – Federated Investors, Inc., Eaton Vance Corp., Franklin Resources, Inc., Waddell & Reed Financial, Inc.,
Affiliated Managers Group, Inc., Ameriprise Financial, Inc., AllianceBernstein Holding L.P., U.S. Global Investors, Inc. and Virtus Investment Partners, Inc. ,
Peer leader in EBITDA
Margin and Gross margin
Peer leader in PreTax
Margin and EBIT Margin
• Competitive Advantage
• Low cost differentiator
• Operational driven earnings
• Creating Core Competencies
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10. DOL Fiduciary Ruling
No Load Funds
401k Plans
Target Date Funds
(Retirement Funds)
New technological and
Strategic Partnerships
• Quality No-Load mutual funds, No 12b-1 or sales commission within No-Load Funds.
• T. Rowe has six in the top 25 of best ranking No-Load mutual funds (Kiplingers).
• Will benefit from assets staying inside 401(k) plans longer.
• Fewer brokers and advisors will urge workers and retirees to roll over money from company-sponsored
retirement plans into IRAs.
• Consistently top 3 performing target date funds 2030-2055, 95% of their Retirement Funds beat their
10-year Lipper average as of 3/31/17.
• Transparent reporting and well defined retirement plans that make fiduciary advising conform to DOL.
• New partnership with the Financial Planning Association, The new alliance will allow the 24,000
FPA members and CFP professionals to access T. Rowe Price's investment and retirement thought
leadership content and to share it with their clients.
• Introduction of new actively managed Robo-Advisor.
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11. T. Rowe Robo-Advisor
T. Rowe approach
• $50,000 minimum accounts
• Model portfolios with eight to 13 of T. Rowe’s
actively managed funds
• Fees only consist of the underlying funds, a
weighted average of 61-82 basis points, with no
advisory fees
• Also provides rebalancing, yearly portfolio
reviews and phone access to licensed client
managers
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12. Strengths
• Strong brand name
• Substantial Liquidity with minimal
debt
• Strong historical fund performance
• Vast array of No-Load funds
Weaknesses
• Little exposure to passive
investments
• International Presence
Opportunities
• Organic Growth of target date funds
• Growth of mutual fund assets from
international investors
• New Robo-Advisor platform
• Well Positioned if DOL ruling goes
through
Threats
• Passive investment vehicles
• Uninterested young generation of
investors
SWOT Analysis
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13. Valuations Compared to Industry
Fund Company Market Cap (Mil) Net Income (Mil) P/E P/B ROE D/E Dividend Yield
T. Rowe Price 17,356 1,215 15.1 3.5 24.4 3.0
BNY Mellon 48,614 3,547 14.8 1.4 9.5 0.7 1.6
Blackrock 61,769 3,172 19.9 2.1 11.0 0.2 2.5
Blackstone 34,540 1,039 19.4 3.5 10.6 0.9 5.0
State Street 29,654 2,143 15.6 1.6 10.8 0.6 1.9
Ameriprise Financial 19,762 1,314 16.4 3.1 19.5 0.8 2.3
Invesco 12,724 854 15.2 1.7 11.1 0.9 3.6
Federated 2,749 208 13.3 4.6 32.4 0.3 3.7
Alliance Bernstein 2,211 216 10.3 1.4 13.8 6.6
Janus Capital 2,423 141 17.3 1.5 8.8 0.2 3.4
Industry Average 3,399 14,263 18.9 1.9 15.1 0.6 3.5
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14. Valuation - Historic Multiple
Historic Multiple
Valuation 4/11/2017
Company TROW
Current Price $69.99
Target Price $100.34 43.37%
Wtd
Target $100.69 43.86%
Potential to Upside or
Downside 74.93% 11.80% 75.54% 12.18%
Average 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 est
Price High $48.50 $65.50 $70.20 $55.50 $65.40 $71.30 $66.90 $84.00 $88.60 $87.20 $79.00 $122.44
Price Low $34.90 $44.60 $24.30 $20.10 $42.80 $44.70 $54.50 $66.20 $71.80 $65.90 $63.00 $78.25
Sales per sh $6.85 $8.42 $8.24 $7.22 $9.15 $10.85 $11.76 $13.29 $15.25 $16.77 $17.60 $18.60
Growth Rate 10.04% 22.92% -2.14% -12.38% 26.73% 18.58% 8.39% 13.01% 14.75% 9.97% 4.95% 5.68%
High P/S 6.57 7.08 7.78 8.52 7.69 7.15 6.57 5.69 6.32 5.81 5.20 4.49
Low P/S 4.25 5.09 5.30 2.95 2.78 4.68 4.12 4.63 4.98 4.71 3.93 3.58
Cash Flow per sh $2.17 $2.74 $2.15 $1.93 $2.84 $3.34 $3.75 $4.34 $5.14 $5.39 $5.70 $5.95
Growth Rate 10.97% 26.27% -21.53% -10.23% 47.15% 17.61% 12.28% 15.73% 18.43% 4.86% 5.75% 4.39%
High P/CF 21.50 22.35 23.91 32.65 28.76 23.03 21.35 17.84 19.35 17.24 16.18 13.86
Low P/CF 13.60 16.08 16.28 11.30 10.41 15.07 13.38 14.53 15.25 13.97 12.23 11.05
Earnings per sh $1.90 $2.40 $1.82 $1.65 $2.53 $2.92 $3.36 $3.90 $4.55 $4.63 $4.84 $5.10
Growth Rate 11.00% 26.32% -24.17% -9.34% 53.33% 15.42% 15.07% 16.07% 16.67% 1.76% 4.54% 5.37%
High P/E 24.67 25.53 27.29 38.57 33.64 25.85 24.42 19.91 21.54 19.47 18.83 16.32
Low P/E 15.54 18.37 18.58 13.35 12.18 16.92 15.31 16.22 16.97 15.78 14.23 13.02
Dividends per sh $0.56 $0.68 $1.20 $1.00 $1.08 $1.24 $1.36 $1.52 $1.76 $2.08 $2.16 $2.28
Growth Rate 15.35% 21.43% 76.47% -16.67% 8.00% 14.81% 9.68% 11.76% 15.79% 18.18% 3.85% 5.56%
Low Yield 1.82% 1.15% 1.04% 1.71% 1.80% 1.65% 1.74% 2.03% 1.81% 1.99% 2.39% 2.73%
High Yield 2.92% 1.60% 1.52% 4.94% 4.98% 2.52% 2.77% 2.50% 2.30% 2.45% 3.16% 3.43%
Payout Ratio 29.47% 28.33% 65.93% 60.61% 42.69% 42.47% 40.48% 38.97% 38.68% 44.92% 44.63% 44.71%
Growth Rate 8.83% -3.87% 132.71% -8.08% -29.57% -0.52% -4.69% -3.71% -0.75% 16.14% -0.66% 0.17%
Book Value per sh $9.16 $10.50 $9.69 $11.15 $12.74 $13.51 $14.96 $18.38 $20.66 $19.01 $20.90 $22.40
Growth Rate 8.86% 14.63% -7.71% 15.07% 14.26% 6.04% 10.73% 22.86% 12.40% -7.99% 9.94% 7.18%
High P/BV 5.08 5.29 6.24 7.24 4.98 5.13 5.28 4.47 4.57 4.29 4.59 3.78
Low P/BV 3.29 3.81 4.25 2.51 1.80 3.36 3.31 3.64 3.60 3.48 3.47 3.01
Estimated Prices
High P/S $122.24
Low P/S $79.06
High P/CF $127.93
Low P/CF $80.90
High P/E $125.82
Low P/E $79.25
Low Yield $125.13
High Yield $77.97
High P/BV $113.76
Low P/BV $73.79
Calculated High/Low
prices for given metric
Buy Range $78.25 $92.98
Hold Range $92.99 $107.72
Sell Range $107.73 $122.46
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15. Price Ranges
Buy Range $78.25 $92.98
Hold Range $92.99 $107.72
Sell Range $107.73 $122.46
T. Rowe’s current market price
sits below our forecasted Buy
Range at $69.99
Target price of $100.34 indicates
a 43.37% upside potential
Best case scenario price of
$122.46 would mean a 73.93%
increase
Even the worst case scenario in
this model indicates an upside
of 11.8%
T. Rowe Price Share Price and Projections
50
60
70
80
90
100
110
120
4/11/2013 4/11/2014 4/11/2015 4/11/2016 4/11/2017
TROW
$100
High Price
Target Price
Low Price
$122
$78
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