Invesco (IVZ) is an investment management firm that provides a wide variety of asset management, investing, and financial planning products and services, notes dividend expert Ben Reynolds, editor of Sure Dividend.
The company serves retail, institutional, and wealth management customers around the world. Invesco has more than 7,000 employees, serves clients in more than 150 countries, and trades with a market capitalization of $11.6 billion.
In late April, Invesco reported first-quarter financial results. Revenue of $958 million missed analyst expectations by $20 million but still increased 10.5% year-over-year. Earnings-per-share of $0.67 rose 10% from the same quarter a year ago and beat analyst expectations by $0.01 per share.
Separately, Invesco announced April assets under management (AUM) of $934 billion. AUM growth is the major performance driver for investment management firms like Invesco.
The strong recent performance of the U.S. and international markets has contributed to stronger demand for investment products. If the markets continue to do well, Invesco’s AUM should continue to rise. Invesco is also pursuing growth through acquisitions.
In addition to the Intelliflo purchase, Invesco recently completed the acquisition of Guggenheim Investments’ ETF business for $1.2 billion. This acquisition will enhance Invesco’s product offerings in the rapidly-growing and low-cost ETF industry, positioning the firm for growth in an increasingly fee-sensitive world.
Invesco has significant competitive advantages in the asset management industry and operates with a sound balance sheet. The company has credit ratings of A2 and A from Moody’s and Standard & Poor’s, respectively. Strong credit ratings allow an investment management firm to uphold a reputation of financial integrity, which helps retain and grow the client base.
Invesco has generated nine consecutive years of positive long-term net inflows. In addition, the company had a dividend payout ratio of 44% last year. Still, investors should note that the performance of asset management firms will fluctuate along with the financial markets due to their dependence on AUM.
Analysts expect Invesco to generate earnings-per-share of $2.85 in 2018. Based on this, Invesco stock trades for a price-to-earnings ratio of 9.7. We believe a fair valuation for Invesco is a price-to-earnings ratio of 14-15. Our fair value price estimate for Invesco is approximately $41. The stock currently trades at $28.
Over the next five years, a rising valuation could add 7%-8% to total returns. In addition, we believe Invesco can reasonably generate earnings growth of 6%. When accounting for with the firm’s 4.3% dividend yield, Invesco’s total returns could reach 17% per year.
