On Friday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on shares of T. Rowe Price (NASDAQ:TROW), raising the price target to $113 from $108, while sustaining a Hold rating on the stock. The revision reflects a valuation based on a projected earnings multiple that is 30% lower than the S&P 500's price-to-earnings (P/E) ratio.
The firm's approach to valuing traditional asset manager stocks like T. Rowe Price involves applying a P/E relative to the S&P 500 on their 2025 earnings per share (EPS) estimates, set a year ahead.
This method considers a premium or discount relative to the stock's historical P/E compared to the S&P 500. T. Rowe Price's new price target stems from the expectation that the stock will trade at a significant discount to the broader market average.
Deutsche Bank noted several factors that could pose risks to T. Rowe Price's stock performance. These downside risks include potential market downturns, unexpectedly high outflows or a shift from active to passive investment products, a rotation from growth stocks to value stocks, prolonged underperformance in several strategies, loss of key personnel, less benefit than anticipated from the Oak Hill acquisition, and the possibility of higher U.S. corporate tax rates.
Conversely, the firm also highlighted potential upside risks for T. Rowe Price. These include the near-term improvement in the performance of the company's largest funds, a quicker return to positive organic growth, strong growth in international distribution, more significant benefits from the Oak Hill acquisition than initially expected, and more extensive stock repurchases. These factors could contribute to a more favorable outcome for the asset management firm's stock.
InvestingPro Insights
As T. Rowe Price (NASDAQ:TROW) navigates the challenges and opportunities outlined by Deutsche Bank, real-time data and insights from InvestingPro provide a deeper look into the company's financial health and market position. Currently, T. Rowe Price boasts a market cap of $26.0 billion and trades at a P/E ratio of 15.1, which is attractively low compared to its near-term earnings growth. This aligns with the Deutsche Bank's observation of the stock trading at a discount to the broader market average.
InvestingPro Tips highlight T. Rowe Price's commendable track record of maintaining dividend payments for 39 consecutive years, signaling a potential draw for income-focused investors. Additionally, the company's liquid assets exceed short-term obligations, suggesting a robust financial position that may reassure shareholders amidst market volatility.
For those considering an investment in T. Rowe Price, the InvestingPro Fair Value estimate stands at $135.42, which is higher than the current price, hinting at potential undervaluation. Investors looking to delve further into T. Rowe Price's prospects can find additional insights on InvestingPro, where 4 more tips are available to help inform their decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.