Invesco Estimates Moderated
Invesco Ltd.'s (IVZ) diluted earnings of $0.41 per share were in-line with our estimate but a penny ahead of consensus. Assets under management decreased 6.2% year-over-year and 1.9% sequentially to $461.3 billion as on June 30, 2008. The decline was primarily due to the sharp downturn in the global equity markets during the quarter.
Total net outflows of $1.5 billion (compared to net inflows of $1.2 billion for 1Q08), mainly comprised of $6.2 billion in long-term net outflows, somewhat offset by money market net inflows of $4.7 billion. After reviewing the results and considering the ongoing concerns with the sector, we maintain our Hold recommendation on the shares.
Subsequent to its relisting on the NYSE, IVZ's relative valuation with the U.S. based peers appears more reasonable. The shares currently trade at 12.9 times the consensus estimate for FY08, a 32% discount to 18.9 times for the peer group median. On a price-to-book basis, the shares trade at 1.41 times, which is a 65% discount to 4.06 times for the peer group median.
The valuation on price-to-book basis looks somewhat attractive, given a ROE 51% below the peer median. Relative valuation also looks good on PEG basis as IVZ's PEG ratio is 1.08, a 14% discount with the 1.26 median for the peer group. We, however, note that the consensus forward growth rate is at a 20% discount to the median.
Based on second quarter results, we have moderated our FY08 and FY09 earnings estimates to $1.68 per share and $2.10 per share, respectively. Our six-month target price of $23.5 per share equates to about 14.1 times our forward estimate for 2008. Combined with the $0.40 per share annual dividend, this target price implies a 6.2% expected total return over that period.
Campbell Soup Assessed a Hold
Campbell Soup Co.'s (CPB) Transformation and Driving Quality Growth Plans are improving the topline through a combination of improved products, attractive packaging, a new retail shelving system, and more effective marketing. Price increases and a line of lower sodium soups helped Campbell accomplish the management's financial goals in the last two fiscal years.
The management continues to optimize the portfolio with the introduction and reformulation of lower sodium soups. However, rising cost inflation and flat sales in the high margin condensed soup business are concerns. A Hold recommendation has been re-established.
Campbell's stock has traded in a wide P/E multiple range of 14 to 31 over the last 15 years. The stock peaked in 1998 at a 31 P/E, a quarter before EPS also peaked. A P/E multiple contraction ensued as the company's condensed soup category sales sagged.
