On Wednesday, investment firm Evercore ISI adjusted its outlook on shares of Invesco (NYSE:IVZ), reducing the price target to $16 from the previous $17 while maintaining an In Line rating. The adjustment follows a market reaction that saw Invesco's shares decline by over 6% on the same day. This drop came in spite of several positive factors, including a third consecutive quarter of positive asset flows at a 2% rate, primarily driven by ETFs, fixed income, SMAs, and private markets.
The firm highlighted Invesco's ability to exhibit some control over expenses, which only increased by 1% year-over-year, and noted the company's achievement of $80 billion in gross sales. Additionally, redemptions were reported to have decreased slightly, and the repayment of a senior note was recognized as a step towards achieving net zero debt—a milestone that would potentially allow for the resumption of stock buybacks.
Despite these positive developments, the prevailing investor sentiment appeared to be influenced by ongoing concerns over the industry-wide shift from active to passive investment strategies, which has put pressure on fee rates and margins. Evercore ISI pointed out that this trend, along with current client-driven product preferences, seems to be constraining earnings potential, mirroring the stock's performance from the previous quarter.
Looking ahead, Evercore ISI suggested that while skepticism regarding fee rates and the shift towards passive investing may persist, factors such as continued inflows, stable expenses, and strategic investments in high-demand solutions could pave the way for improved performance.
The firm also cited potential catalysts that could benefit Invesco's outlook, including increased demand in China and real estate markets, a shift in flows from cash to longer-dated fixed income, the possibility of stock buybacks, a deeper partnership with Mass Mutual, and a focus on the company's approximately 5.5% yield.
InvestingPro Insights
Evercore ISI's recent outlook adjustment for Invesco (NYSE:IVZ) coincides with a mix of analyst expectations and market performance metrics that offer a nuanced view of the company's prospects. According to real-time data from InvestingPro, Invesco's market capitalization stands at $6.56 billion, with a price-to-earnings (P/E) ratio of -20.83, indicating that investors may have concerns about the company's profitability. Nonetheless, the adjusted P/E ratio for the last twelve months as of Q4 2023 is a much healthier 3.74, suggesting that Invesco could be undervalued based on its earnings. The revenue for the same period was reported at $5.716 billion, with a gross profit of $1.459 billion, reflecting a gross profit margin of 25.53%.
InvestingPro Tips further enrich the narrative, stating that analysts have revised their earnings upwards for Invesco, signaling optimism for the company's financial performance in the upcoming period. This aligns with Evercore ISI's recognition of Invesco's control over expenses and successful gross sales. Additionally, despite a projected sales decline, Invesco has maintained dividend payments for 18 consecutive years, with a notable dividend yield of 5.49%. These dividends could be particularly attractive to income-focused investors, especially in a low-interest-rate environment.
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