Global Aging And Passive Investing Will Unleash New Markets

Key Takeaways

• Strategic partnerships and global expansion enable Invesco to lead in alternative investments and emerging markets, potentially transforming its growth and profitability outlook.
  
• Capital reallocation, technological investments, and product innovation position Invesco for sustained margin expansion and greater shareholder returns.
  
• Structural industry shifts toward lower-fee passive products, integration challenges, and innovation gaps threaten Invesco's revenue growth, profitability, and long-term competitive position.

Catalysts

A publicly owned investment manager.

• Analyst consensus recognizes the MassMutual and Barings partnership as driving private credit growth, but this could be a structural pivot that turbocharges Invesco's entry into the vast U.S. retirement market for alternatives, potentially positioning the firm as a first-mover and primary beneficiary of what could be hundreds of billions of new inflows, materially raising AUM and long-term revenue growth rates above peers.
  
• While analysts broadly acknowledge the $1 billion preferred stock repurchase as earnings accretive, they may be underestimating the operational flexibility and cost of capital improvement this unlocks: as Invesco rapidly delevers and reallocates capital, sustained margin expansion and a higher payout ratio can drive an accelerated step-up in earnings and shareholder returns over the next several years.
  
• Invesco's globalized footprint and strength in Asia Pacific and EMEA are now positioned to capture the accelerating wealth creation and retirement savings demand in emerging markets, setting up for multiyear, compounding organic inflows and a transformation in the revenue mix towards structurally higher growth and more resilient profitability.
  
• The pending conversion of QQQ from a unit investment trust to an open-end ETF-along with Invesco's rapid innovation in active and thematic ETFs-creates the potential for a surge in net revenue yield and fee income from one of the industry's most recognized brands, meaningfully supercharging revenue and operating margin upside as portfolio shifts and product launches accelerate.
  
• Invesco's strategic investments in technology, digitization and operational scale-including hybrid platforms and digital asset innovation-are poised to unlock significant long-term operating leverage, enabling expense discipline even as AUM grows, which should drive sustained margin expansion and accelerate bottom-line earnings growth.

Invesco Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Invesco compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Invesco's revenue will decrease by 6.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.9% today to 23.7% in 3 years time.
• The bullish analysts expect earnings to reach $1.2 billion (and earnings per share of $2.69) by about August 2028, up from $422.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, down from 22.7x today. This future PE is lower than the current PE for the US Capital Markets industry at 27.1x.
• Analysts expect the number of shares outstanding to decline by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Invesco Future Earnings Per Share Growth

Risks

• The ongoing secular shift from active to passive strategies continues to be a headwind, as seen in continued net outflows from Invesco's Fundamental Equities products, potentially compressing future revenue and net margins as higher-fee active AUM declines and is replaced by lower-fee passive and ETF assets.
  
• Fee compression remains a persistent risk, with management noting continued declines in net revenue yield as client demand pushes toward products with structurally lower fees, threatening overall revenue growth and profitability even as assets under management rise.
  
• Invesco continues to face integration and operational challenges stemming from past acquisitions, and while management highlights efficiency gains, difficulties in containing costs or realizing expected synergies could undermine net margin improvement over the long term.
  
• The rise of direct indexing and customizable portfolio solutions enabled by technology could further diminish flows into traditional pooled funds, pressuring Invesco's established product lines and potentially resulting in long-term revenue erosion.
  
• Invesco's ETF and passive offerings have not matched the innovation pace or market share of industry mega-managers, risking market share loss and slower AUM and earnings growth relative to larger, more scalable competitors as industry consolidation accelerates.

Valuation

• The assumed bullish price target for Invesco is $28.13, which represents two standard deviations above the consensus price target of $22.58. This valuation is based on what can be assumed as the expectations of Invesco's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $29.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $21.55, the bullish analyst price target of $28.13 is 23.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.