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Analyst Blog

Invesco Ltd.’s (IVZ - Analyst Report) healthy asset inflows and its consistent efforts to enhance shareholders’ value seem encouraging. Moreover, the stock closed at $35.36 on Dec 18, reflecting a year-to-date return of 34.7%. Going forward, with the company’s efficient cost containment initiatives and steady balance sheet position, there remain fair chances of the stock’s price appreciation. Therefore, you may continue to hold the stock in your portfolio.

However, given a high level of debt and persistently rising operating expenses, we discourage further addition of the company's shares to your portfolio.

The Rationale

Invesco’s third-quarter 2013 operating earnings per share of 55 cents surpassed the Zacks Consensus Estimate by 3 cents. Additionally, this was 37.5% above the year-ago figure of 40 cents.

Invesco has witnessed growth in assets under management in the last several quarters. Given the present improvement in equity markets, we expect asset inflows to significantly contribute to earnings growth.

Since 2009, Invesco has been hiking its dividend every year. In Apr 2013, the company further increased its payout by 30%. Moreover, Invesco’s strong presence in the U.S., Asia-Pacific and Europe, along with its broad diversification reflects significant long-term growth prospects for its business.

However, rising expenses (attributable to mounting compensation costs) and a high long-term debt level keep us wary. The company is exposed to an unfavorable economic and industrial scenario, which along with its high debt obligation, could drag it to a disadvantageous position.

In line with our analysis, the Zacks Consensus Estimate underwent no revision over the last 30 days. While the Zacks Consensus Estimate for 2013 is $2.10, for 2014 it is $2.44. Hence, Invesco now has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked investment mangers worth considering include Artisan Partners Asset Management Inc. (APAM - Snapshot Report), Brookfield Asset Management Inc. (BAM - Snapshot Report) and Kohlberg Kravis Roberts & Co. L.P. (KKR - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong buy).

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