Upbeat Invesco Earnings Lift Asset Management Stocks

Acquisition of a smaller rival helped grow AUM and drive revenue

Invesco Ltd. (IVZ) jumped 7.8% Wednesday after the $8.12 billion asset manager delivered knockout quarterly earnings. The Atlanta-headquartered firm issued third quarter 2019 adjusted earnings of 70 cents per share, significantly surpassing analysts' expectations of 57 cents per share. Revenue for the period of $1.72 billion fell just short of Street projections but grew 28.2% compared to the September 2018 quarter.

Management credited the company's buyout of OppenheimerFunds for an increase in assets under management (AUM) and a rise in revenues – at the end of the quarter, the firm controlled AUM of $1.18 billion, up 20.7% on a year-over-year (YOY) basis. Invesco agreed to purchased rival asset manager OppenheimerFunds from MassMutual for $5.7 billion in October 2018, with the deal closing in May this year. Acquisitions in the asset management industry have accelerated as firms seek to cut costs and expand distribution to fend off mounting competition from passive investment options.

Invesco stock trades at 6.39 times forward earnings – less than half its five-year multiple of about 13 times – and is up 8.72% on the year. Furthermore, an eye-watering 7.74% dividend yield adds to the asset manager's overall returns.

Let's now take a look at the technicals. Two distinct swing lows have formed several months apart on the Invesco chart – one in August and the other in October – suggesting a possible double bottom. Furthermore, while the trough of each swing low found support around the $15 level, the relative strength index's (RSI's) second trough formed a much shallower low to create a bullish divergence between price and the indicator.

The stock's impressive earnings report saw the price gap above the 50-day simple moving average (SMA) to further cement the bottoming pattern and indicate a move toward crucial resistance at $19.75. Implement risk management by placing a stop order underneath yesterday's low at $16.46 and amending it to the breakeven point if the stock climbs above the 200-day SMA.

Chart depicting the share price of Invesco Ltd. (IVZ)
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Below, we take a look at two other large asset managers – Franklin Resources, Inc. (BEN) and Legg Mason, Inc. (LM) – that also sit well posited to grow assets and capitalize on cost synergies through the acquisition of smaller industry players. Both stocks moved higher Wednesday, rising in the afterglow of Invesco's better-than-expected earnings.

Franklin Resources, Inc. (BEN)

With a market capitalization of $14.02 billion and almost $700 billion in managed assets, Franklin Resources provides investment services for individual and institutional investors. Analysts expect the San Mateo, California-based asset manager to report 2019 fiscal fourth quarter (Q4) earnings of 65 cents per share when it releases results on Friday, Oct. 25. The figure represents a 17.7% decline from the year-ago quarter. In April, the company announced that it planned to reduce its workforce by 5% to reduce costs by $75 million. As of Oct. 24, 2019, Franklin Resources stock offers an enticing dividend yield of nearly 4% but has fallen 3.37% year to date (YTD).

After forming a double top between April and July, the stock tumbled 29% to set a 52-week low at $25.34. Price rebounded somewhat in September but has failed to gain traction since. A close above the 50-day SMA in Thursday's trading session on the back of Invesco's quarterly earning may act as a catalyst for further gains. Those who enter here should target a move to the $31 level, where price encounters resistance from a 12-month horizontal line and the 200-day SMA. Consider placing a stop-loss order beneath intermediate support at $26.50.

Chart depicting the share price of Franklin Resources, Inc. (BEN)
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Legg Mason, Inc. (LM)

Legg Mason offers investment management and related services, controlling over $780 billion in managed assets. The investment manager's September AUM included net outflows of $1.2 billion, driven by net outflows of $1.1 billion in fixed income and $0.6 billion in equities, partially offset by net inflows of $0.5 billion in alternatives, according to a company news release. Wall Street expects the firm to post fiscal Q1 2020 earning per share (EPS) of 86 cents on revenues of $732.01 million when it reports on Wednesday, Oct. 30. These projections indicate respective YOY top- and bottom-line growth of -3.5% and 6.2%. Trading at $36.28 with a market value of $3.15 billion and paying an healthy 4.55% dividend yield, the stock has gained 46.69% this year, outperforming the asset management industry average by over 20% as of Oct. 24, 2019.

A "golden cross" signal in April – when the 50-day SMA crossed above the 200-day SMA – correctly predicted the start of a new uptrend. However, over the past two months, the price has pulled back to multiple support trendlines that provide a suitable entry point for swing traders. Also, the moving average convergence divergence (MACD) line has crossed above its signal line to confirm shifting momentum back to the upside. Play for further gains by setting a profit target near the September swing high at $39.81 and cutting losses if price closes beneath this month's low at $34.

Chart depicting the share price of Legg Mason, Inc. (LM)
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