Evercore, Inc. (EVR) is one of Wall Street’s most admired pure-play investment banks, and one that most people on Main Street have probably never heard of, notes Adam Johnson, editor of Bullseye Brief.
Founded in 1995 by former Deputy Treasury Secretary Roger Altman, Evercore ranks #1 at advising US corporations targeted in M&A transactions — a distinction it has held every year since 2017. The firm is also well regarded by global institutional investors, who’ve named it the #2 best independent stock research provider since 2014.
Earnings rose to a record last year as corporate activity soared post-Covid, propelling the stock to an all-time high. This year, frozen capital markets are taking a toll on both revenues and valuation, but therein lies the opportunity.
While Evercore bankers generate 30% more profit than they did before Covid, their stock trades at 2019 price, meaning the market gives them no credit.
Evercore consistently outranks other boutique investment banking peers on important metrics like return on assets (25% vs. 14%), return on equity (57% vs. 50%), pretax profit margins (34% vs. 24%) and five-year average revenue growth (18% vs. 13%).
The issue facing Evercore — and all of Wall Street — is that capital markets have effectively shut down this year. Deal volumes have collapsed, from IPOs to leverage loan issuance and Evercore’s bread and butter: M&A advisory. In many cases, these are the steepest and longest capital markets declines since 2008.
The decision to buy EVR boils down to valuation, and at 8 times 2023 earnings estimates it’s cheap — assuming markets stabilize and backlog goes live. Consensus pegs 2023 EPS at $11.50, up 12% from this year but still down significantly from last year’s all-time high of $17.50.
I like owning EVR at/below $90, which is consistent with support in recent months. The current P/E is historically cheap, and if earnings surge into next year as capital markets reopen, the stock could rise appreciably. In the meantime, the company pays a 3% dividend.
