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Net Outflows, Volatility to Hurt Invesco's (IVZ) Q4 Earnings

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Invesco (IVZ - Free Report) is scheduled to announce fourth quarter and 2018 results on Jan 30, before the market opens. Its revenues and earnings for the to-be-reported quarter are projected to decline year over year.

In the last reported quarter, the company’s adjusted earnings missed the Zacks Consensus Estimate. Results were adversely impacted by higher operating expenses and long-term net outflows while an increase in revenues acted as a tailwind.

Invesco doesn’t have an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in only one of the trailing four quarters, the average beat being 0.70%.

Invesco Ltd. Price and EPS Surprise

 

Invesco Ltd. Price and EPS Surprise | Invesco Ltd. Quote

Also, activities of the company in the fourth quarter failed to encourage analysts. As a result, the Zacks Consensus Estimate for earnings of 56 cents has been revised 12.5% lower over the past 30 days. Further, the figure reflects year-over-year decline of 23.3%.

Let’s check the factors that are likely to impact Invesco’s fourth-quarter results.

Per the monthly metrics data published by Invesco, its preliminary assets under management (AUM) of $888.2 billion as of Dec 31, 2018, was down 9.5% from Sep 30, 2018 level. Also, preliminary average AUM of $924.4 billion (as reported by the company) as of Dec 31, 2018 reflects a fall of 6.2% sequentially.

Significant volatility and corrections in equity markets resulted in substantial outflows during the fourth quarter. Thus, given the decline in total and average AUM, performance fees and investment management fees are expected to have decreased.

As investment management fees constitutes a significant part of Invesco’s net revenues, fall in the same will have an adverse impact on the top line. Notably, the consensus estimate for sales for the to-be-reported quarter is $1.30 billion, which reflects a fall of 5.5% year over year.

On the cost front, Invesco is undertaking an initiative – Business Optimization – to manage costs and improve efficiency. While this is likely to have led to expense savings in the to-be-reported quarter, the company’s inorganic growth strategy and investments in franchise might have resulted in higher operating expenses.

Here’s what our quantitative model predicts:

The chances of Invesco beating the Zacks Consensus Estimate in the fourth quarter are quite low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Invesco is -3.11%.

Zacks Rank: Invesco currently has a Zacks Rank #3, which increases the predictive power of ESP. But we need to have positive Earnings ESP to be sure of earnings beat.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Prosperity Bancshares, Inc. (PB - Free Report) is slated to report results on Jan 30. It has an Earnings ESP of +1.11% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Credit Acceptance Corporation (CACC - Free Report) is also slated to release results on Jan 30. It has an Earnings ESP of +0.21% and carries a Zacks Rank #3.

Ares Capital Corporation (ARCC - Free Report) has an Earnings ESP of +1.10% and carries a Zacks Rank of 3. The company is slated to release results on Feb 12.

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