UPDATE: Goldman Sachs Upgrades Invesco Ltd. to Buy, Reiterates $38 PT on Favorable Risk/Reward Dynamic

In a report published Thursday, Goldman Sachs analyst Marc Irizarry upgraded the rating on

from Neutral to Buy, and reiterated the $38.00 price target. In the report, Goldman Sachs noted, “We upgrade IVZ to Buy from Neutral with a $38 price target (+14% upside). Recent underperformance (-12% vs. peers since 10/15 PM-turnover announcement) creates favorable risk/reward dynamic in our view, while strong fundamentals should drive upside to earnings. We see three reasons for shares to outperform: (1) Flow/AuM diversity still underappreciated. YTD inflows are +$29.1 bn for IVZ (+6% annualized organic growth). No single asset class (of five) represented more than 30% of flows. All three major regions (Americas, Europe, Asia) are in positive territory for 2013, despite UK outflows, even prior to PM turnover. We think underperformance misses the platform's resiliency; (2) Incremental margin adds upmarket + flow leverage. We see opportunity in operating leverage (60-65% guidance, supported by higher margin ETF and allocation product). Valuations are up 11% YTD in the space, so we prefer stories where superior asset gathering will “flow through” to 2014E EPS, with upside in a sustained equity flow rally. (3) Capital returns buffer downside. The firm announced increased buyback authorization on the 3Q call ($1.5 bn; 10% of cap), implying some downside protection if opportunistic share buybacks pick up. We raise our 2013/2014/2015 estimates +0.5%/+1.6%/+1.3% to reflect incremental operating leverage.” Invesco Ltd. closed on Wednesday at $33.28.