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Will Invesco's (IVZ) Rising Revenues Aid Q3 Earnings Beat?

Invesco Ltd. (IVZ) is scheduled to report third-quarter 2014 results on Thursday Oct 30, before the market opens.

Last quarter, Invesco delivered a positive earnings surprise of 12.1% on the back of top-line growth driven by an impressive rise in investment management fees. This was, however, partly offset by higher expenses. Notably, this asset manager has delivered a positive earnings surprise in the last four trailing quarters, with an average beat of 7.17%.

Will Invesco be able to beat the estimates this time around? Or will it disappoint? Let us see how things have shaped up for this announcement.

Factors Influencing Q3 Results

Dealing primarily in asset management business, Invesco does not face substantial threat from the overall low interest rate environment. The company expects performance fees to decline in the quarter owing to the absence of seasonality factors and come in a range of $2–$5 million. Further, other revenues are expected to fall and settle within $33-$35 million.

However, we believe that investment management fees should continue to improve as major U.S. equity indexes witnessed an uptick during the quarter and Invesco has benefited from this trend. Hence, overall total revenue should grow driven by a rise in investment management fees.

Invesco’s inability to check expenses remains a major concern for us. Additionally, in the quarter, management expects compensation expenses to increase in the range of $5–8 million, while marketing expenses are anticipated to remain elevated.

Further, property, office and technology expenses will rise to roughly $80–$82 million, mainly due to sustained technology investments, expansion of Hyderabad office and expenses related to rising sales in Europe. Also, general and administrative expenses are estimated in the range of $73-$75 million, owing to business expansion plans and launch of new products. Overall, we believe that all these activities should keep operating expenses on the higher side.

Invesco’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained stable at 62 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Invesco is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Invesco is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 62 cents.

Zacks Rank: Invesco’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks to Consider

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

Earnings ESP of JAVELIN Mortgage Investment Corp. (JMI) is +8.89% and it has a Zacks Rank #1. The company is expected to release results on Oct 29.

First Bancshares Inc. (FBMS) has an Earnings ESP of +21.74% and a Zacks Rank #3. It is expected to report results on Oct 30.

Nationstar Mortgage Holdings Inc. (NSM) has an Earnings ESP of +3.81% and a Zacks Rank #3. It is scheduled to report results on Nov 6.

Read the Full Research Report on IVZ
Read the Full Research Report on NSM
Read the Full Research Report on JMI
Read the Full Research Report on FBMS


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