The boon of a U.S. tax cut is driving cross-sector upgrades, but Invesco Ltd. IVZ appears to be the exception.
The firm’s off-shore domicile and relatively small tax boost inspired one analyst to downgrade the stock Wednesday.
The Rating
Morgan Stanley analyst Michael Cyprys downgraded Invesco from Overweight to Equal-Weight and lowered the price target from $40 to $39.
The Thesis
Invesco’s Bermuda domicile minimizes the firm’s tax benefits to a 4-percentage point rate decrease; other traditional asset managers are expected to see a 10-percentage point drop, Cyprys said. (See the analyst's track record here.)
“We see this as a relative challenge for IVZ, which will not have the same capacity to reinvest a large windfall or drive as much earnings growth,” Cyprys said.
The firm’s tax position, compounded by weakening asset flows, diminished accretion from its Guggenheim acquisition and Vanguard’s fresh competitiveness in smart-beta exchange-traded funds inspired the analyst’s downgrade, he said.
Invesco’s lower corporate tax rate and higher market levels did merit a 6-percent increase in Morgan Stanley’s 2018 earnings-per-share estimates. The diversified franchise should grow faster than peers, and Cyprys said he's watching for near-term improvement in sustainable flow trajectory.
Price Action
Invesco was trading down slightly at $36.26 at the time of publication.
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