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Analyst Blog

On Sep 11, 2013, we reaffirmed our Neutral recommendation on Invesco Ltd. (IVZ - Analyst Report). This was based on the company’s consistently positive inflows and meaningful capital deployment activities. However, we remain concerned about high debt levels and rising expenses.

Why Neutral?

On Jul 31, Invesco reported second-quarter 2013 earnings per share of 50 cents, missing the Zacks Consensus Estimate by a penny. A slight rise in revenues and a fall in expenses were the positives for the quarter. Further, the company’s balance sheet position remained stable. However, a marginal fall in assets under management was the headwind.

The Zacks Consensus Estimate for 2013 decreased 2.8% to $2.07 per share over the last 60 days. Further, for 2014, the Zacks Consensus Estimate decreased 1.2% to $2.39 per share over the same time period. Invesco currently carries a Zacks Rank #3 (Hold).

Positive asset inflows continue to be Invesco’s strength. Given the stabilizing equity markets, we expect asset inflows to contribute significantly to the company’s earnings growth. Further, Invesco is an asset for yield-seeking investors as it is actively involved in capital deployment activities. In Apr 2013, the company hiked its quarterly dividend by about 30%. Since 2009, the company has been increasing its dividend every year.

On the flip side, a persistent rise in operating expenses remains a plausible concern. Though the company has been initiating measures to reduce costs, the impact is not expected to be significantly visible any time soon. Moreover, Invesco’s high debt level could restrict it from procuring additional finance for working capital, capital expenditures, acquisitions, debt service requirements or other purposes.

Other Stocks to Consider

Some better-performing banks include Affiliated Managers Group Inc. (AMG - Analyst Report), Brookfield Asset Management Inc. (BAM - Snapshot Report) and Fortress Investment Group LLC (FIG - Snapshot Report). All of these stocks carry a Zacks Rank #2 (Buy).

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