A month has gone by since the last earnings report for Eaton Vance (EV). Shares have lost about 17% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Eaton Vance due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Eaton Vance’s Q4 Earnings In Line, Revenues & AUM Improve
Eaton Vance’s fourth-quarter fiscal 2018 (ended Oct 31) adjusted earnings of 85 cents per share were in line with the Zacks Consensus Estimate. The bottom line was 21% higher than the prior-year level.
Higher revenues and growth in AUM on a year-over-year basis supported the results. However, rise in operating expenses was a headwind.
Net income attributable to shareholders (GAAP basis) was $105.5 million or 87 cents per share, up from $82.1 million or 69 cents per share in the year-ago quarter.
Fiscal 2018 adjusted earnings of $3.21 per share surpassed the Zacks Consensus Estimate by a penny. Also, this compared favorably with $2.48 reported a year ago. Net income attributable to shareholders (GAAP basis) was $381.9 million or $3.11 per share, up from $282.1 million or $2.42 per share in fiscal 2017.
Revenues & Expenses Rise
Total revenues in the reported quarter were $436 million, up 7% year over year. This upside was primarily driven by higher management fees and other revenues. Also, the top line marginally beat the Zacks Consensus Estimate of $435 million.
Total revenues in fiscal 2018 were $1.7 billion, up 11% year over year. Also, the top line was in line with the Zacks Consensus Estimate.
Total expenses increased 9% from the prior-year quarter to $291.5 million, largely due to higher compensation and related costs, fund-related expenses, amortization of deferred sales commissions, as well as other expenses.
Total operating income grew 4% year over year to $144.5 million.
Liquidity Position Strong, AUM Improves
As of Oct 31, 2018, Eaton Vance had $600.7 million in cash and cash equivalents compared with $610.6 million on Oct 31, 2017. The company had no borrowings outstanding against its $300-million credit facility.
Eaton Vance’s consolidated AUM increased 4% year over year to $439.3 billion as of Oct 31, 2018, reflecting net inflows of $17.3 billion over the past year.
During fiscal 2018, Eaton Vance repurchased nearly 5.6 million shares of its Non-Voting Common Stock for $286.7 million, under the company’s existing repurchase authorization.
Management anticipates the compensation as a percentage of revenue in the first quarter of fiscal 2019 to be roughly 36%, given seasonal pressures associated with payroll tax clock reset 401(k) funding and year-end based salary increases.
Effective tax rate for fiscal 2019 is anticipated to be 25.9-26.4%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.91% due to these changes.
At this time, Eaton Vance has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Eaton Vance has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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