Invesco's Q2 Earnings Outlook and the Case for a "Strong Buy" Despite Earnings Contraction

Invesco (IVZ) stands at a critical juncture as it prepares to report Q2 2025 earnings on July 22. While analysts project a 7% year-over-year decline in earnings per share to $0.40, the firm's revenue and asset growth metrics paint a far more compelling picture. With assets under management (AUM) expanding to $1.892 trillion—a 9.7% increase from $1.7158 trillion in Q2 2024—and revenue expected to rise 1.9% to $1.11 billion, Invesco's underlying business strength suggests its valuation may be undervalued despite near-term earnings headwinds.

The AUM Growth Story: A Foundation for Long-Term Resilience

Invesco's AUM growth has been a standout performer in 2025, driven by strong market returns and strategic inflows. The firm's ETF & Index Strategies segment, including its flagship Invesco QQQ Trust, added $19.1 billion in AUM in June alone, pushing total ETF assets to $546.9 billion. This segment alone accounts for a significant portion of the firm's revenue, with service and distribution fees projected to reach $375.77 million in Q2 2025—a 3.9% year-over-year increase.

The firm's real estate and private credit initiatives are also gaining traction. A $330 million real estate investment program targeting healthcare and residential assets, combined with a partnership with Barings to develop private credit solutions, signals a diversification strategy that could insulate Invesco from market volatility. These initiatives align with global investor demand for non-U.S. and low-volatility assets, positioning Invesco to capture market share in a shifting landscape.

Valuation Metrics: A Bargain in Disguise

Despite the expected earnings contraction, Invesco's valuation appears compelling. The firm trades at a forward P/E ratio of 9.30, well below its 5-year average of 9.23 and significantly cheaper than the industry average of 13.82. More strikingly, its PEG ratio of 0.06 suggests the stock is undervalued relative to its earnings growth potential. This metric, which compares the P/E ratio to projected earnings growth, is far lower than the peer average of 0.24 and the sector average of 0.03, making Invesco an outlier in terms of value.

Analysts have upgraded their outlooks recently. Barclays raised its price target to $17 from $15, while Wells Fargo upgraded IVZ to “Equal Weight” with a $18 target. RBC Capital and Morgan Stanley also increased their price targets, citing improved risk profiles and margin expansion potential. These upgrades reflect growing confidence in Invesco's ability to navigate fee pressures and deliver consistent revenue growth.

Earnings Surprise Potential: A Catalyst for Re-rating

Invesco's track record of beating earnings estimates adds another layer of intrigue. Over the past four quarters, the firm has exceeded consensus expectations three times, with a 12.82% positive surprise in the most recent quarter. The Zacks Earnings Surprise Probability (ESP) model currently forecasts a +3.40% likelihood of an earnings beat in Q2 2025, suggesting a nearly 70% chance of outperformance.

This resilience is partly due to cost discipline. Invesco's $1 billion preferred stock repurchase program, funded by debt, is expected to be accretive to earnings in H2 2025. While near-term costs from the Alpha initiative and compensation expenses will weigh on margins, the firm's strategic investments in technology and distribution are likely to offset these pressures over time.

Strategic Positioning: A “Strong Buy” in a Volatile Market

Invesco's Zacks Rank #1 (Strong Buy) rating is justified by its combination of undervaluation, AUM growth, and strategic agility. The firm's stock has surged 34.5% in the past month, far outpacing the S&P 500's 5.4% gain, reflecting investor optimism. With a 12.7% upward revision in Q2 2025 EPS estimates over 30 days, analysts are increasingly factoring in the firm's ability to navigate macroeconomic challenges.

However, risks remain. Geopolitical tensions and trade policy uncertainty could dampen capital flows, particularly in international markets. Additionally, rising interest rates may pressure private credit and real estate assets, which now account for a growing share of Invesco's portfolio. Investors should monitor Q2 earnings closely for guidance on how management plans to address these headwinds.

Final Verdict: Buy for the Long Haul

Invesco's Q2 2025 earnings contraction, while notable, is overshadowed by its robust AUM growth, strategic diversification, and attractive valuation. The firm's ability to generate consistent revenue from service fees and distribution—despite a challenging macroeconomic environment—demonstrates operational resilience. With a PEG ratio of 0.06 and a Zacks Rank #1, IVZ offers a rare combination of value and growth potential.

Investors with a medium-term horizon should consider adding Invesco to their portfolios, particularly ahead of the July 22 earnings report. A positive surprise or strong AUM growth could catalyze a re-rating of the stock, unlocking further upside. For those already invested, the firm's strategic initiatives—ranging from private credit expansion to cost optimization—suggest a path to sustained outperformance in a volatile market.

In the end, Invesco's story is one of adaptation and value creation. While earnings may dip in Q2, the long-term fundamentals remain intact. For investors willing to look beyond short-term noise, IVZ presents a compelling opportunity.