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Here's Why You Should Hold Evercore (EVR) in Your Portfolio

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Evercore Inc.’s (EVR - Free Report) initiatives to boost the client base in advisory solutions and expand geographically are expected to aid the company.Yet, rising expenses due to expansion moves might affect its bottom-line growth.

Stabilization of the macro-economic backdrop, resilient market conditions, low interest rates and widespread availability of financing are likely to keep the merger deal momentum elevated in the upcoming quarters. Evercore’s efforts to boost its client base in advisory solutions along with geographical expansion efforts will enable it to leverage the favorable scenario and drive solid revenue growth. 

Also, the company generates the majority of revenues from its investment banking business. Though total adjusted net revenues declined in 2019 due to lower advisory fees, the same witnessed a compound annual growth rate (CAGR) of 16.8% over the last four years (ended 2021). The trend is expected to continue in the upcoming period, given the above-mentioned moves.

Its strong balance sheet will likely enable it to pursue the expansion moves. As of Dec 31, 2021, cash and cash equivalents were $575.3 million, and investment securities and certificates of deposit were $1.8 billion. Moreover, current assets exceeded current liabilities by $1.6 billion as of the same date. Notably, with sound liquidity, Evercore is less likely to default interest and debt repayments if the economic situation worsens.

EVR’s steady capital deployment activities are also supported by its balance sheet. Recently, the company announced that its board of directors approved share repurchases of up to the lesser of $1.4 billion or 10 million shares of Evercore’s Class A common stock and/or Evercore LP Units. 

Notably, the company has been repurchasing shares for the past few years. In 2019, 2020 and 2021, EVR repurchased shares worth $283 million, $147 million and $721 million, respectively.

Share buybacks aside, the company has been regularly paying dividends and enhancing shareholder value. In April 2021, it hiked the dividend by 11.5%. Over the past four years (ended 2021), the annual dividend per share has increased, seeing a CAGR of 11.7%.

However, Evercore’s expenses witnessed a CAGR of 11.4% over the last five years (ended 2021) on elevated employee compensation and benefits expenses. Together with the company’s desire to fill coverage gaps and expand products, the front-office expansion is expected to continue. We believe that a continual expense rise is likely to limit bottom-line growth.

Evercore’s investment management segment's revenues, which comprise a smaller portion of total revenues, have increased, witnessing a negligible CAGR of 0.7% over the last six years (2016-2021). Further, any falling volatility in institutional assets under management trend on account of foreign exchange fluctuations might likely result in reduced fees. In the upcoming quarters, no major contribution is expected from the segment to the company’s revenues.

The company also operates in the competitive financial advisory market. It faces competition from other large and established financial institutions, with greater name recognition and the ability to offer a wider range of products, enhancing their competitive position.

Over the past year, shares of EVR have declined 19.8%, underperforming the 7.8% fall of the industry it belongs to.

 

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Currently, EVR carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the space are Cowen Group and Morgan Stanley (MS - Free Report) . At present, COWN sports a Zacks Rank of 1 and MS carries a Zacks Rank #2 (Buy).

Over the past year, shares of COWN have declined 37.3%, while the MS have inched up 0.2%

Over the past 30 days, the Zacks Consensus Estimate for COWN’s current-year earnings has been revised 3% upward, while the same for MA has moved 2.4% north in 60 days’ time.


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