One of the best ways to develop a picture of any company is with a SWOT analysis -- a look at a company's strengths, weaknesses, opportunities, and threats. Today I'd like to focus on T. Rowe Price
- Brand: T. Rowe Price has built a very strong global reputation as a leader in the asset management space. Investors can be comforted by the company's commitment to annually increasing the shareholders' dividend since its IPO in 1986. The asset manager only enhanced its reputation further during the financial crisis as one of the few unscathed financial firms.
- Balance sheet: T. Rowe Price has perhaps the cleanest balance sheet among its peers. With about $735 million in cash and investments and no debt, T. Rowe remains very flexible in how it chooses to expand shareholder value. In the first two quarters of this year, T. Rowe repurchased shares to the tune of $175 million.
- Performance over peers: At the end of the day, clients allocate money to asset managers to generate superior returns. In this category, T. Rowe is a leader in its field. More than 68% of the firm's mutual fund assets are invested in four- or five-star-rated funds. This trumps the industry average of 40%.
- Operating margins: The firm's operating margins are recovering but still off from its 2007 levels. This is a result of the market peaking and the dramatic decline that followed. Assets under management declined dramatically. The importance of a healthy market in the company's earnings growth cannot be understated.
- International presence: T. Rowe is more leveled to the U.S. economy and equity markets than its competitors. This has benefited the firm as inflows have increased faster since the economic slowdown. However, if volatility comes back and persists in U.S. equity markets, the firm will see outflows of capital at a faster pace.
- Top heavy administrator: T. Rowe serves as the administrator for more than 2,000 retirement plans. However, the top 25 clients represent more than 40% of the administered assets. So a loss of a larger client would have a significant effect on assets under management.
- Acquisitions: With global growth emerging and greater wealth generation coming from outside the U.S., much of T. Rowe's future growth will come globally. The company's superior balance sheet will allow it to be a big player in this space. In January, T. Rowe acquired a large stake in Indian asset manager UTI.
- Less spending, more saving: The great recession has left many wondering if they need to buy that big-screen television or take the extra vacation. As we become a nation with more savers and less free spending, asset managers stand to benefit as Americans look for a safe place to park their hard-earned dollars.
- Legislation: It is still unknown just how much of an effect the recently passed financial regulation bill will have on the asset manager's earnings. More specifically, regulation with regards to 401(k)s will play a key role in how institutions and businesses allocate their funds.
- ETFs: The proliferation of new ETFs is slowly taking away share from active fund managers. These ETFs offer investors similar products at a lower cost.
- Equity exposure: T. Rowe is heavily exposed to the equity markets as about 53% of the firm's assets under management are allocated to U.S. equities. If the market were to have another extremely tumultuous period, the firm's funds and earnings could suffer pretty significant hits.