AMP Ltd (ASX: AMP) shares are enjoying a strong run over the shortened holiday trading week.

In early afternoon trade on Thursday, shares in the S&P/ASX 200 Index (ASX: XJO) diversified financial services company are changing hands for $1.21 apiece, up 2.1%.

That sees the share price up 8.3% since last Wednesday's close, with investors responding positively to AMP's first-quarter business update (Q1 2025), released last Thursday.

The analysts over at Macquarie Group Ltd (ASX: MQG) were also pleased with those results.

In a research report published yesterday, the broker said AMP's fund flows and its current valuation are "enough to get bullish".

Macquarie upgraded AMP shares from neutral to outperform with a 12-month price target of $1.34. That represents a potential upside of almost 11% from current levels.

Atop the potential share price gains, AMP stock also trades on a partly franked trailing dividend yield of 2.5%.

Why AMP shares look primed to outperform

Macquarie noted that AMP's March quarterly results revealed ongoing momentum of improved net flows in the company's Platforms and its Superannuation & Investments divisions.

The broker's bullish upgrade of AMP shares is anchored in AMP's improving track record.

Macquarie highlighted:

• Platforms net cash inflows of +$740m (+268% vs pcp). Closing AUM [Assets Under Management] decreased to $78.8b (4Q24: $79.8b) due to challenges from investment market activity.
• Superannuation & Investments net cash outflows of -$108m (-$371m in 1Q24). Closing AUM decreased to $55.8b (4Q24: $56.8b) similar to the Platforms division.
• Bank: AMP's GLAAs [Gross Loans and Advances] grew +$62m (+1.1% annualised growth) in the quarter. Net Interest Margins remained steady.

Commenting on the company's net interest margin (NIM) last week, AMP CEO Alexis George said, "We continue to consciously manage the loan book in our mortgage business in order to prioritise margin, and NIM for the quarter remains steady."

Macquarie also believes AMP shares will benefit from the growth in its new retirement offering, the MyNorth Lifetime product, which now holds around $510 million on the platform.

The broker said, "This is assisting the net flows growth for the division."

"We are continuing to introduce new features, functionality and support for North that helps advisers better service their clients," George said following the release of AMP's results.

Another reason the ASX 200 financial stock earned an upgrade to outperform is its attractive valuation.

Macquarie said, "AMP's 2-year forward PE [price to earnings ratio] is currently 10.5x (based on FactSet consensus). This is a ~33% discount to weighted peers."

How about the class action?

Among the factors that could impact AMP shares in the months ahead is an eight-week trial that's set to start on 26 May.

Macquarie noted:

According to the legal firm leading the class action, the claim alleges "AMP trustees … contravened a number of statutory … obligations, which resulted in AMP members being overcharged administration fees …".

We believe AMP has not provided for this item given a "reliable estimate" cannot yet be made, but acknowledge AMP likely has insurance coverage.

Consensus is not yet provided for this item, but we believe the excess capital on the balance sheet and valuation discount in the stock price more than compensate for this risk.