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On Jun 17, 2013, we reiterated our long-term Neutral recommendation on Invesco Ltd. (IVZ - Analyst Report). This is based on its robust first-quarter results and sound capital deployment activity. However, persistently rising expenses, the volatile U.S. dollar and higher level of debt are likely to dent its profitability.

Why Neutral?

Invesco’s first-quarter earnings outpaced the Zacks Consensus Estimate driven by higher net revenue, partially offset by a rise in operating expenses. Further, increased assets under management (AUM) and a stable balance sheet position were the tailwinds.

Following the first-quarter results, the Zacks Consensus Estimate increased 3.4% to $2.15 per share for 2013 over the last 60 days, with the majority of estimates moving north. Further, for 2014, almost all the estimates moved up, thereby taking the Zacks Consensus Estimate to $2.49 per share, over the same time-frame. With both 2013 and 2014 estimates rising, Invesco currently carries a Zacks Rank #3 (Hold).

Asset inflows at Invesco have witnessed an upward trend over the past several quarters. With stabilizing equity markets, asset inflows are anticipated to contribute significantly to earnings growth.

Moreover, Invesco is an asset for yield-seeking investors. In Apr 2013, the company hiked its quarterly dividend by approximately 30% to 22.5 cents per share. Moreover, the company has an effective share repurchase program in place.

However, higher expenses remain a concern for Invesco. Though the company has adopted a prudent approach to lower its costs and intends to continue with its expense management initiatives, the impact is not expected to be felt in the near term.

Further, high debt level could restrict Invesco from procuring additional finance for working capital, capital expenditures, acquisitions, debt service requirements or other purposes. Additionally, this might put the company in a disadvantageous position if economic conditions deteriorate.

Other Stocks to Consider

Better performing stocks in the same sector that are worth a look include Noah Holdings Limited (NOAH - Snapshot Report), Virtus Investment Partners, Inc. (VRTS - Snapshot Report) and GAMCO Investors, Inc. (GBL - Snapshot Report). All of these carry a Zacks Rank #1 (Strong Buy).

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