Considering Invesco Ltd.‘s (IVZ) earnings stability and improving debt situation, Fitch Ratings has raised the company’s debt rating by a notch on Monday. The rating agency expects Invesco’s strong cash-generation ability to reduce its debt further.
Along with improving operating resultson the back of strong long-term investment performance with the gradual economic recovery, the debt rating upgrade is expected to boost investors’ confidence in the stock in the near term.
Previously, Invesco’s long-term issuer default rating was “BBB+” by Fitch. The latest upgrade lifts it to “A-.” Both ratings are investment-grade.
The rating upgrade is a big achievement for the company. Despite using its credit line to fund the cash portion of the Van Kampen acquisition, the company was able to maintain debt levels akin to its “A-” peers. The rating outlook for the company remains “stable.”
In June 2010, Invesco completed the acquisition of Van Kampen, a retail asset-management business of Morgan Stanley (MS), in a cash-and-stock transaction worth $1.5 billion.
According to Fitch analysts, the inclusion of Van Kampen significantly helped Invesco to perform better with respect to earnings and profit margin.
Earnings Recap
Invesco’s second-quarter adjusted earnings came in at 44 cents per share, just a penny ahead of the Zacks Consensus Estimate. This also compared favorably with earnings of 27 cents in the prior-year quarter.
On a GAAP basis, earnings came in at 39 cents per share compared with 38 cents in the prior quarter and 9 cents in the year-ago quarter.
Invesco’s earnings soared over the prior-year quarter primarily on an increase in net revenue, partially offset by higher operating expenses. The company’s assets under management also continued to grow during the quarter.
Invesco currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
