Invest in Eaton Vance...

06/24/2005 12:00 am EST


Paul Tracy

Editor, The StreetAuthority Market Advisor

Investors may have their assets managed by Eaton Vance, but those who invested in the money manager's stock have seen their shares outperform even such growth favorites as Wal-Mart or Berkshire Hathaway over the past quarter century. Here, Paul Tracy offers his overview.

"Assets under management are the lifeblood of an investment management company, and on that front money management firm Eaton Vance (EV NYSE) continues to build on its success. During fiscal 2004, assets shot up 26%, thanks to net inflows that swelled to $13.8 billion, a new company record. In total, assets are now poised to surpass the $100 billion threshold sometime this quarter. With assets on the rise, Eaton Vance was able to generate impressive double-digit revenue growth, with the top line climbing more than 10% to $185.5 million. Those gains helped the firm deliver an 8% improvement in earnings.

"In the competitive money management field, Eaton Vance has carved out an important niche in the tax-managed segment. The company was among the first to introduce retail mutual funds specifically managed to minimize tax exposure, and it is also a leading provider of separately managed accounts, which are designed to appeal to tax-conscious institutional and high-net-worth clients. Although the firm's institutional separate accounts business reported modest outflows during the quarter, this lucrative platform should be a key revenue driver going forward.

"New products, most notably closed-end funds, have helped EV to attract record levels of new assets, and this has translated into solid earnings growth. However, Eaton Vance has rewarded shareholders in other ways as well, as strong operating cash flows have helped the firm strengthen its balance sheet, fund $115 million in stock repurchases, and pay out nearly $40 million in dividends over the past year. On that front, the firm recently boosted its dividend payout by more than 33% to $0.32 per share, giving the stock a respectable yield of 1.3%.

"The company's shares have posted a 32% annualized return over the past 25 years. FactSet Research Systems ranks Eaton Vance #1 over the past 25 years in terms of total performance, even ahead of such well-known companies as Wal-Mart and Berkshire Hathaway. With all of these factors in mind, I continue to believe that this diversified money manager is well positioned to outperform the broader market over the long haul. This outperformance would be par for the course for EV, thanks to management's diligent progress year in and year out."

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