Morningstar | Evercore Reports a Surprisingly Strong 4Q; Shares Fairly Valued
Narrow-moat Evercore reported an exceptionally strong fourth quarter that led to record net revenue for 2018. Fourth-quarter net revenue increased 43% from the previous year to $771 million. The main contributor to the revenue increase was 81% growth in advisory revenue to $696 million. Given that a change in accounting rules pulled $51 million of net revenue into the third quarter from the fourth quarter, it was quite possible that the typically positive fourth quarter seasonality could have been less pronounced this year. However, many investment banks continued to report strong fourth-quarter advisory revenue. For the full year, net revenue increased 21% to a record $2.1 billion and adjusted, diluted earnings per share increased 65% to $9.01. We don't anticipate making a material change to our $92 fair value estimate for Evercore and assess shares as being fairly valued.Macroeconomic uncertainties continue to be fairly high, but 2019 should still be a decent year for Evercore. Securities market volatility, interest rates that have climbed from a year ago, and trade concerns continue to lend a cautious view on merger activity. That said, most seem to be predicting a 2019 slowdown in GDP instead of a full-blown recession. Barring a recession and taking into consideration that we're likely near the peak of the current capital market cycle, we would expect 2019 revenue to be around 2018's level.
Outside of advisory where Evercore reported peer-beating results, other revenue lines followed the general trend of other investment banks. Fourth-quarter underwriting revenue was a low $8.9 million compared with a $21 million average the earlier three quarters of the year. Other investment banks also reported poor equity underwriting results due to the choppy market. The increased equity market volatility did help trading revenue increase 30% to $60.6 million compared to the prior, three-quarter average, though.
Evercore is a holding company. Through its subsidiaries, the company is an investment banking advisory firm. The company's segments include: Investment Banking, which includes the advisory business through which it provides advice to clients on mergers, acquisitions, divestitures, shareholder activism and other corporate transactions, and the Evercore International Strategy and Investment business through which it provides macroeconomic, policy and fundamental equity research and agency-based equity securities trading for institutional investors; and Investment Management, which includes the wealth management business through which it provides investment advisory, wealth management and fiduciary services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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