Invesco: Earnings Preview

| About: Invesco Ltd. (IVZ)

Invesco Ltd. (NYSE:IVZ) is scheduled to report its second quarter 2011 results before the opening bell on Tuesday, July 26. The Zacks Consensus Estimate for the quarter is 43 cents per share, representing a year-over-year growth of about 60%.

Improving long-term investment performance propelled by a gradual recovery in the global equity market is expected to boost Invesco’s operating results over the mid to long term. Though rising operating expenses will suppress earnings in the near term, a significant improvement in operating leverage from the company’s cost control initiatives is expected ahead. The company is also poised to benefit from improved global investment flows owing to its broad diversification.

Previous Quarter Performance

Invesco reported first quarter 2011 operating earnings of 41 cents per share, missing the Zacks Consensus Estimate by a penny. However, the results compared favorably with earnings of 27 cents recorded in the prior-year quarter.

Invesco’s earnings soared year over year primarily on an increase in net revenue as a result of inclusion of the retail asset management business of Morgan Stanley, partially offset by an increase in operating expenses. Invesco had acquired Morgan Stanley’s business division in the second quarter of 2010. Further, the company’s assets under management also continued to grow during the reported quarter.

Earnings Estimate Revisions – Overview

Prior to the results release, Invesco’s earnings estimate has remained stable over the last 7 days.

We will now look into the details of earnings estimate revisions to substantiate why investors should hold this stock.

Agreement of Analysts

Looking at the estimate revision trends, it is quite clear that analysts are in agreement with the positive second quarter earnings outlook for Invesco. Of the 14 analysts covering the stock, none have inched up their estimates for the second quarter over the last 7 days. However, one analyst has lowered the estimate.

However, for fiscal 2011 and 2012, one of the total 16 analysts has increased estimate over the last 7 days and one has lowered. This indicates stability in the performance of the stock in the near term.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the second quarter has remained unchanged at 43 cents over the last 7 days. Similarly, estimates for 2011 and 2012 have remained stable at $1.79 and $2.11 per share, respectively.

The magnitude of estimate revisions explains why holding the stock at the current level will be a good decision.

Earnings Surprise

Invesco’s performance has been stable over the trailing four quarters with respect to earnings surprises. The average earnings surprise was a positive 6.4%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

By and Large

Invesco’s core business trends continue to witness a gradual improvement. Also, over the last few quarters, the company has significantly improved its asset diversification, distribution, investment performance, and profitability both organically as well as through acquisitions. This is expected to boost investors’ confidence.

Additionally, Invesco has adopted a prudent approach to reduce its costs over the last few years. The company intends to continue with its disciplined expense management, though not at the cost of its future growth. Although operating expenses shot up in the last few quarters, primarily due to higher compensation costs, the company has been operating more efficiently by leveraging its global operating platforms.

Since a large part of Invesco’s business and total AUM are based outside the U.S., the volatility of the U.S. dollar against other currencies could have a significant negative impact on the company’s financials.


Considering the estimate revision trends and the magnitude of revision, there is no significant directional pressure on the shares over the near term.

Invesco currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.

Along with Invesco, Waddell & Reed Financial Inc. (NYSE:WDR), T. Rowe Price Group Inc. (NASDAQ:TROW) and CIT Group Inc. (CIT) are also slated to report their second quarter earnings on July 26.