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Eaton Vance (EV) Q4 Earnings: Will the Stock Disappoint?

BK HBAN EV CARO

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Eaton Vance Corp. (EV - Free Report) is scheduled to report fourth-quarter and fiscal 2016 (ended Oct 31) results on Tuesday Nov 22, before the opening bell.

Last quarter, Eaton Vance’s adjusted earnings were in line with the Zacks Consensus Estimate. Results primarily benefited from a fall in expenses. However, decrease in revenues acted as an undermining factor.

Earnings Whispers

Eaton Vance doesn’t have a decent surprise history as indicated from the chart below:

EATON VANCE Price and EPS Surprise

 

EATON VANCE Price and EPS Surprise | EATON VANCE Quote

Further, our proven model show that the chances of Eaton Vance beating the Zacks Consensus Estimate in the fiscal fourth quarter are low. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. This is not the case here, as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Eaton Vance is -3.28%. This is because the Most Accurate estimate of 59 cents is below the Zacks Consensus Estimate of 61 cents.

Zacks Rank: Eaton Vance has a Zacks Rank #3. This increases the chance of an earnings beat, but we need to have positive ESP to be sure of the same.

Nonetheless, the Zacks Consensus Estimate has remained stable over the last seven days.

Factors to Impact Q4 Results

On the revenue front, Eaton Vance is likely to gain from the turnaround in the global equity markets. Further, assets under management (AUM) should witness improvement during the quarter. As of Sep 30, 2016, the company had reported a 2.6% rise in AUM from Jul 31, 2016 level.

However, we anticipate lower average effective fee rates to hamper growth in investment advisory and administrative fees. Nonetheless, the top line is likely to witness a slight improvement in case outflows from higher fee strategies abate.

Moreover, management expects operating margin to improve modestly, given higher managed assets as of Jul 31, 2016 and continuing controlled discretionary spending costs. The company expects operating margin to be nearly 33% on the assumption of flat markets during the quarter.

On the expense front, Eaton Vance’s NextShares initiative will likely increase costs during the quarter. Also, the company’s plan to launch new fund products in the U.S. should lead to higher marketing expenses. Moreover, we believe that non-compensation costs are likely to increase due to a rise in distribution expenses and fund-related costs. Hence, overall expenses should trend higher in the quarter.

Stocks That Warrant a Look

Some better-ranked stocks in the finance space include Carolina Financial Corp. (CARO - Free Report) , Huntington Bancshares Inc. (HBAN - Free Report) and The Bank of New York Mellon Corp. (BK - Free Report) .

Carolina Financial has witnessed an upward earnings estimate revision of 12.9% for the current year, over the past 30 days. Also, its share price is up 41.4% year to date. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares also boasts a Zacks Rank #1 and has witnessed an upward earnings estimate revision of 2.4% for the current year, in the past 30 days. Moreover, its share price is up 10.6% year to date.

BNY Mellon witnessed an upward earnings estimate revision of 3.6% for the current year over the past 30 days. Also, its share price is up 15.5% year to date. It currently sports a Zacks Rank #2.

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