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Should Value Investors Choose Eaton Vance (EV) Stock Now?

Zacks Equity Research
·5 mins read

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Eaton Vance Corporation EV stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Eaton Vance has a trailing twelve months PE ratio of 10.63, as you can see in the chart below:


 
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.39. If we focus on the long-term PE trend, Eaton Vance’s current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.


 
Moreover, the stock’s PE also compares favorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 12.87. At the very least, this indicates that the stock is slightly undervalued right now, compared to its peers.


We should also point out that Eaton Vance has a forward PE ratio (price relative to this year’s earnings) of just 11.94, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Eaton Vance has a P/S ratio of about 2.42. This is relatively lower than the S&P 500 average, which comes in at 3.38 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.


 
If anything, EV is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Eaton Vance currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Eaton Vance a solid choice for value investors.

What about the Stock Overall?

Though Eaton Vance might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of A and a Momentum score of A. This gives EV a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been discouraging. The current year consensus estimate has declined 0.96% in the past two months, whereas the full year 2021 estimates fallen 5.4% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Eaton Vance Corporation Price and Consensus

Eaton Vance Corporation Price and Consensus
Eaton Vance Corporation Price and Consensus

Eaton Vance Corporation price-consensus-chart | Eaton Vance Corporation Quote

Owing to the bearish estimate trend, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.

Bottom Line

Eaton Vance is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Finance sector has clearly underperformed the market at large, as you can see below:


 
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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Zacks Investment Research