EUR 850.00 For Business Accounts Only

Morningstar | Evercore Starts Off 1Q With Healthy Earnings; Shares Fairly Valued

Narrow-moat Evercore's first-quarter 2019 earnings were healthy, but the length of this economic expansion continues to be a worry. The company reported net income of $67 million, or $1.52 per diluted share, on $415 million of net revenue, which decreased 10% from the previous year, which isn't too much of a concern. The main area of weakness was advisory fees, down 14%. We don't anticipate making a material change to our $97 fair value estimate and assess shares as being fairly valued.

The somewhat more stabilized outlook for the economic environment bodes well in the near term, while the increased talent pool creates a long-term stronger company. People seem to be baking in an economic slowdown for the global economy now, whereas the fourth quarter of 2018 had many worrying about an imminent recession. Even with anemic growth, Evercore should be able to grow earnings due to its higher amount of revenue-generating senior managing directors. The company ended the first quarter with 105 senior managing directors in its advisory business compared with about 90 at the end of 2017 and 80 at the end of 2016.

The company's equity underwriting and trading business, which has accounted for about 15% of revenue over the past several quarters, is holding up fine. Trading revenue in the quarter was $42 million, on the lower end of the $40 million to $60 million range that this line item has generated since 2015. Given the industry headwinds caused by scrutiny over trading and research payments resulting from MiFID II regulation, it seems like the pressure is bearable. Underwriting fees of $27 million is one of the company's better results and significantly higher than the $14 million average of the previous three quarters.

Along with first-quarter earnings, the company announced that it's increasing its quarterly dividend 16% to $0.58 per share.