Market Gains Lift T. Rowe Price's AUM to Record
We expect to raise our fair value estimate to $202 per share from $193 to account for continued improvements in the company's assets under management.
While there was little in wide-moat-rated T. Rowe Price's second-quarter results that would alter our long-term view of the firm, we expect to raise our fair value estimate to $202 per share from $193 to account for continued improvements in the company's assets under management, as well as adjustments to our own near- to medium-term forecasts since our last update.
T. Rowe Price closed the June quarter with a record $1.623 trillion in managed assets, up 6.9% sequentially and 33.0% year over year. Net outflows of $600 million during the quarter were slightly worse than our expectations of being more on par with the $1.9 billion quarterly run rate for inflows we've seen from the firm the past five years. It also marks only the 16th time that T. Rowe Price has reported quarterly outflows in the past two decades. Even so, we still see the firm generating flattish organic AUM growth this year as it moves closer to the period when retiring baby boomers are less of a drag on flows.
With average AUM up 39.0% year over year during the June quarter, T. Rowe Price reported a 36.3% increase in net revenue when compared with the prior-year period (owing to product mix shift and a slight decline in the firm's effective fee rate). First-half top-line growth of 30.5% was stronger than our full-year forecast, and while we do expect revenue growth to come down to more normal levels in the back half of the year, we have revised our full-year forecast to around 25% (from 22.5%).
Adjusted operating margins of 49.3% during the first half of 2021 were 560 basis points higher than the year-ago period. Much as with revenue, we see operating profits normalizing more in the back half of the year, with full-year profitability looking to be 47%-48% (compared with the 44.2% that the firm put up in 2020), which represents a slight increase in our operating margin projection for 2021.
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