On Jan 2, we issued an updated research report on Invesco Ltd. IVZ. The company’s strong balance sheet position along with cost savings efforts, improving assets under management (AUM) and diverse product offerings are likely to continue supporting growth. However, high-debt level as well as amortization of goodwill and intangible assets might adversely affect its profitability in the long run.

Shares of this Zacks Rank #2 (Buy) company have gained 2.3% in the past six months, underperforming the industry’s rally of 14.2%.

The company’s top-line growth looks impressive. Net revenues grew at a 5-year (2012–2016) CAGR of 4.6% despite witnessing a fall in 2016. The increase was primarily driven by improving AUM balance. The momentum continued in 2017 as well.

Also, Invesco’s diverse product offerings and alternative investment strategies should continue attracting investors, which will support top-line growth in the quarters ahead. Given a robust institutional pipeline along with a solid retail channel, the company seems to stay on track to achieve its organic growth-rate target.

Meanwhile, the company’s total AUM has been witnessing a consistent improvement. Over the last five years (2012–2016), AUM had recorded a CAGR of 5.1% with momentum continuing in 2017. Further, AUM is expected to benefit from the prevalent volatility in equity market.  The company has been capitalizing on the growing demand for passive products and alternate asset classes as well.

Moreover, Invesco’s operating expenses have been witnessing a declining trend over the past few years. Although expenses increased in 2017, it has been falling at a 3-year (2014–2016) CAGR of 4.1%.

The company’s effort – Business Optimization – is also likely to transform key business support functions, thereby boosting efficiency. In fact, Invesco expects costs related to these initiatives to be nearly $133 million, of which roughly $31 million will be incurred through mid-2018. It remains on track to achieve annualized run-rate savings of approximately $50 million by 2018.

However, high debt level of the company could restrict it from procuring additional finance for working capital, capital expenditures, acquisitions, debt service requirements or other purposes. As of Sep 30, 2017, Invesco’s long-term debt amounted to $2.1 billion (nearly 7% of total assets). High-debt obligation, if combined with unfavorable economic and industry conditions, can drag the company to a relatively disadvantageous position.

Other Stocks to Consider

Some other stocks worth considering from the same space are Ashford AINC and Legg Mason LM, each sporting a Zacks Rank #1 (Strong Buy) and Woori Bank WF carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ashford witnessed an upward earnings estimate revision of 7.1% for 2017, in the last 60 days. Its share price has increased 115% in the past 12 months.

Legg Mason’s Zacks Consensus Estimate was revised 2.2% upward for 2017, in the last 60 days. The company’s share price has increased 31.2% in the past 12 months.

Woori Bank witnessed upward earnings estimate revision of 5.7% for 2017, in the last 60 days. Its share price has increased 42.2% in the past 12 months.

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Invesco PLC (IVZ): Free Stock Analysis Report
 
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