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Morningstar | Solid Organic Growth and Limited Fee Compression Lifts T. Rowe Price's 3Q and Year-to-Date Results

There was little in wide moat-rated T. Rowe Price's third-quarter results that would alter our long-term view of the firm. We are leaving our $130 per share fair value estimate in place. T. Rowe Price closed out the September quarter with $1.084 trillion in managed assets, up 3.8% sequentially and 14.3% on a year-over-year basis. While net inflows of $2.7 billion during the third quarter were a step down from the company's reported $7.6 billion during the second quarter, as well as $11.3 billion during the first quarter of 2018, this does not concern us all that much given the seasonality in flows (with the first quarter tending to be the strongest period for flows in any given year) and the fact that the firm's third-quarter flows were comfortably above the $1.8 billion quarterly run rate we've seen over the past five years. T. Rowe Price's solid organic growth this year has been driven by solid long-term investment performance and increased penetration of the retail channel (exemplified by deals this past year with Fidelity Investments' FundsNetwork and Schwab's Mutual Fund OneSource platform).

While average AUM was up 15.6% year over year during the September quarter, T. Rowe Price reported only a 12.6% gain in revenue when compared with the prior year's period, primarily because of a 6.1% decline in administrative, distribution and servicing fees, as well as a lowering of its overall effective fee rate to 0.471% from 0.474% during the third quarter of 2017. Year-to-date top-line growth of 14.3% was at the upper end of our full-year projection for 10%-15% revenue growth, but we expect weaker equity markets and flows during the fourth quarter to brings results down closer to the midpoint of our forecast range. As for profitability, year-to-date adjusted operating margins of 44.7% were 30 basis points higher than 2017 levels, as compensation and other expenses expanded at a slower rate than revenue. This was in line with our forecast range of 43% to 45%.