T. Rowe Price Group Inc.'s fourth-quarter profit rocketed 48 percent as investors poured billions of dollars into the Baltimore investment company's mutual funds during the stock market rally.
With money continuing to flow back into the market this year, analysts say, Price is poised to gain market share and add to its assets under management, which reached a record $190 billion at year's end.
Net income in the final three months of last year increased to $68.6 million, or 53 cents per share, from $46.2 million, or 37 cents per share, in the fourth quarter of 2002. Analysts polled by Thomson Financial had anticipated earnings of 52 cents per share.
"I would say, relative to their peers, they are well positioned to take market share," said Ken Worthington, an analyst with CIBC World Markets in New York.
George A. Roche, T. Rowe Price's chairman and president, said stocks aren't likely to do as well this year as last. Small technology and telecommunications companies whose share prices soared despite poor financial results are in for an especially hard fall, he said.
"I would not be surprised if you have a market correction here for a while, because the market has gone up pretty strongly in recent months on a sustained basis," he said.
For the year, Price reported net income of $227 million, or $1.77 per share, up from $194 million, or $1.52 per share, posted for 2002. The company's shares closed down 59 cents at $52.16 in trading yesterday.
Price might have indirectly benefited from the illegal trading scandals that slammed the industry beginning last fall, when New York Attorney General Eliot Spitzer revealed widespread instances of late trading and market timing in some mutual funds.
Competitors such as Janus, Putnam Investments, Alliance Capital and Invesco Funds Group were tainted by the investigations, prompting many investors to pull money from those companies in favor of those with records thought to be unblemished.
T. Rowe Price's funds had an especially good year, with 65 percent of the company's retail funds earning an overall rating of four or five stars from Morningstar, the fund-tracking firm.
"That's hard to beat," said Rachel Barnard, a Morningstar analyst. "So I think this market and the whole regulatory environment is really playing into T. Rowe's hands."
Bernard said the company's shares are too expensive, however. Morningstar has a target price of $37 per share, well below yesterday's close.
"We think that investors are expecting maybe unrealistically high growth going forward, which probably won't be the case," she said.
Price revived its advertising campaign as the market began to gather momentum in the fourth quarter. The company spent more than $20 million on print and television ads, the most since the first quarter of 2001. The spending contributed to operating expenses $24 million higher than those of the fourth quarter of 2002. Roche said the advertising strategy will continue in the current quarter and beyond.
New regulations being debated in Washington could lead to higher costs in the year ahead, Roche said. Regulators are considering a number of measures to curb mutual fund trading abuses and make fund fees more transparent, among other things. "It will be more regulation, more compliance, more everything," Roche said.
Analysts don't expect such measures to have a significant impact on the company's earnings.
"It's going to cost everyone some amount of money just to comply with all this stuff, but it's nothing worrisome in the case of a T. Rowe Price," said Robert Lee, an analyst with Keefe Bruyette & Woods Inc. in New York.