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The "Wright" Stuff

05/05/2006 12:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

With a time-tested strategyand one of the industry's best long term performance records Kelley Wright applies a strict set of criteria to compile its list of "select blue chips." From these, he applies a dividend-based valuation system to find the market's best current values.

"Eaton Vance (EV NYSE) is one of the oldest financial services firms in the US. The company, which was founded in 1924 is well known for its family of mutual funds and other offerings. After yet another dividend increase, yield is approaching levels of historic high and the company is once again in the Undervalued category.

"Eaton Vance’s mutual fund operations are credited with pioneering equity funds with reduced tax implications. At the end of 2005, the company and its affiliates managed more than 160 open-end and closed-end funds. Two of EV’s major families of mutual funds are offered to retirement plans and tax-free investors. Other mutual fund products focus on fixed-income, taxable equities, and floating bank loans. All funds have a particular focus on the needs of wealthy investors.

"EV currently manages $113.3 billion in assets. The company’s management activities range from managing assets of institutions to higher net worth clients, seeking a more personal touch than is offered from mutual funds. In addition, the company employs fund managers for all but five of its namesake funds. The company utilizes a 20% ownership stake in Lloyd George Management to handle management for four international equity funds. An independent New York firm, Orbimed, manages Eaton Vance’s Worldwide Health Sciences Fund.

"Over the last few years, EV has undertaken significant acquisitions activities. In 2001, the company paid $75 million for a 70% equity stake in Atlanta Capital Management. During the same month, the company paid $32 million for an 80% equity stake in Fox Asset Management. In 2003, the company paid $28 million for an 81.2% profits interest in Parametric Portfolio Associates, whose specialty is to design portfolios which outperform client-specified benchmarks. Parametric’s addition to EV strengthens its ability to offer comprehensive account management.

"The close of the first quarter of 2006 brought news of disappointment for Wall Street analysts, who failed to accurately predict earnings. The ensuing sell off shaved nearly 7% from the price of shares. During the quarter, the company realized net income of $0.29/share compared to only $0.23/share during the previous year. In late 2005 the company also increased its annual dividend by 25% to $0.40/share. This marked the 25th consecutive year of increase, at a compound annual rate of 21%.

"At a recent price of $28, Eaton Vance is Undervalued with 5% downside risk to a low price of $27. From current levels the stock has 79% upside potential to $50. Meanwhile, the dividend is among the safest of all the companies we follow. Eaton Vance is an excellently run company and has been shown by some studies to be the best performing stock in the market over the last 25 years. The shares are at Undervalue up to a price of approximately $29.50."

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