Welcome BlackRock, Goodbye Invesco: Goldman Adjusts Its Americas Conviction List Roster

The firm made a like-for-like change, taking Neutral-rated Invesco off its Conviction List and adding its Buy-rated BlackRock onto the Conviction List.

Narrative Changes

Analyst Alexander Blostein noted that organic revenue growth of asset managers continues to diverge. Additionally, the analyst said the ability of these companies to drive operating leverage is likely to become an increase differentiator amid rising investment needs and regulatory headwinds.

Rating/Price Target

• BlackRock: Upgraded to Buy/$500, suggesting 14-percent upside from current levels.
• T. Rowe Price: Upgraded to Buy/$100, suggesting 14-percent upside from current levels.
• Invesco: Downgraded to Neutral/$36, suggesting 5-percent upside from current levels.

BlackRock's Operating Income Growth To Accelerate

Goldman Sachs expects BlackRock's annual operating income growth to accelerate amid easing pressures on its blended fee rates, improving trends in active, competitive tailwinds in the EU/UK and scaling of its tech growth initiatives.

As the tech growth initiatives scales, the firm expects a more sustainable P/E improvement.

Consensus For T. Rowe Price Is Overly Pessimistic

The firm sees the consensus earnings estimate for T. Rowe Price as overly pessimistic, as the expectation underestimates tailwinds from T. Rowe Price's solid fund performance, stabilizing flows and improving outlook for operating leverage into 2018 estimates.

The firm expects near-term organic growth to stabilize in the 1–1.5 percent range, given the nearly 500 basis-point year-to-date alpha in T. Rowe Price's equity products, stabilizing backdrop in Target Date business and early signs of traction in new initiative.

Twin Risks For Invesco

Goldman Sachs removed Invesco from its Americas Conviction List, and also downgraded the shares of the company from Buy to Neutral. Although noting that the shares are still inexpensive, the firm said it believes decelerating retail flow momentum and risks to operating margin expectations limit the near-term re-rating case.