(By Balaseshan) BMO Capital Markets analyst David Chiaverini downgraded rating of Invesco Ltd. (NYSE: IVZ) to "Market Perform" from "Outperform" based solely on valuation, with $29 price target.
The brokerage maintained its 2013 adjusted EPS estimate for the publicly owned investment manager of $2.00 and its 2014 estimate of $2.25.
While valuations for asset managers have increased this year with the overall market, Chiaverini believes the relative valuation for Invesco makes it a less compelling opportunity, and he prefers a better entry point for new money.
Invesco's relative valuation is now in line with historical averages. Its price-to-earnings multiple is 86% relative to traditional asset manager peers and 94% relative to the S&P 500, in line with historical medians of 88% and 94%, respectively, the analyst noted.
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Despite Chiaverini's downgrade, he continues to like Invesco's prospects given its global presence, good fund performance, and diverse product offering including its highly successful IBRA product suite.
Besides a pullback in the shares, the analyst would look to get constructive again if the operating margin expands ahead of his expectation, retail flows accelerate and Invesco is able to realize additional synergies from its acquisition of Morgan Stanley's retail investment management business, and/or the recent strength in equity fund flows remains sustainable as Invesco is one of the better-positioned asset managers for a rotation to equities.
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IVZ is trading at 13.8 times Chiaverini's 2013 asset management operations (AMO) EPS estimate compared with peers at 14.0 times. His $29 price target is based on a sum-of-the-parts analysis.
IVZ is trading up 0.51% at $27.42 on Tuesday.